Inflation targeting practices similar across central banks

Release date
16 August 2017

Inflation targeting practises are similar across many central banks despite significant differences in their formal frameworks, says the Reserve Bank in its latest Bulletin article published today.

The Bulletin article titled “An international comparison of inflation targeting frameworks” looks at how New Zealand’s Policy Targets Agreement compares to nine other advanced economy central banks, and how the specifications in each framework compare to the actual practice of each central bank.

“In order to conduct the comparison we focused on five components of an inflation-targeting framework: the inflation target definition, communication of monetary policy, secondary considerations, assessment of inflation-targeting performance, and framework reviews and revisions,” says the article’s author, Senior Economic Analyst Amber Wadsworth.

“Overall we find that the formal inflation-targeting frameworks can differ greatly between the central bank, but, in practice, each bank operates in a similar manner.”

“The central banks we looked at have similar inflation targets and produce similar monetary policy reports and inflation targeting assessments. There is more variability in the financial stability considerations when setting monetary policy, and how the inflation-targeting frameworks are reviewed and revised,” says Wadsworth.

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