The Unassuming Economist

A new IMF country report reviews the backdrop to the revamping of the inflation targeting framework in New Zealand. It says that “The Phase One of the Review of the Reserve Bank Act can be regarded as a next step in the gradual evolution of inflation targeting in New Zealand. The new PTA, with its qualitative description of the employment objective, can be regarded as a refinement in the current practice of inflation targeting. The flexible inflation targeting regime was successful in terms of stabilizing output and inflation while maintaining price stability. Recent episodes of inflation undershooting the target serve as an example of uncertainty on the real-time assessment of slack in the economy. The explicit dual mandate will require some changes in the communication of the central bank, including on maximum sustainable employment.”