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Inflation Targeting Does Not Anchor Inflation Expectations: Evidence from Firms in New Zealand

Saten Kumar, Hassan Afrouzi, Olivier Coibion, Yuriy Gorodnichenko

NBER Working Paper No. 21814
Issued in December 2015
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

We study the (lack of) anchoring of inflation expectations in New Zealand using a new survey of firms. Managers of these firms display little anchoring of inflation expectations, despite twenty-five years of inflation targeting by the Reserve Bank of New Zealand, a fact which we document along a number of dimensions. Managers are unaware of the identities of central bankers as well as central banks’ objectives, and are generally poorly informed about recent inflation dynamics. Their forecasts of future inflation reflect high levels of uncertainty and are extremely dispersed as well as volatile at both short and long-run horizons. Similar results can be found in the U.S. using currently available surveys as shown in Binder (2015).

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Document Object Identifier (DOI): 10.3386/w21814

Published: Saten Kumar & Hassan Afrouzi & Olivier Coibion & Yuriy Gorodnichenko, 2015. "Inflation Targeting Does Not Anchor Inflation Expectations: Evidence from Firms in New Zealand," Brookings Papers on Economic Activity, vol 2015(2), pages 151-225. citation courtesy of

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