Inflation expectations and low inflation in New Zealand

Release date
23/06/2016
Reference
DP2016/09
Authors
Özer Karagedikli; Dr John McDermott
Published as

Karagedikli, Özer and John McDermott (2018). ‘Inflation expectations and low inflation in New Zealand’, New Zealand Economic Papers, Taylor and Francis Journals, Volume 52(3), Pages 277-288, DOI: https://doi.org/10.1080/00779954.2017.1348386.

ISSN
1177-7567

This paper finds that the changing behaviour of inflation expectations can explain much of the unusually low inflation in New Zealand. Across several empirical specifications of the Phillips curve, we observe that inflation expectations have become more backward-looking. We also find that the speed of adjustment in inflation expectations, proxied by the spread between short- and longer-term inflation expectations, can explain the unusually low inflation.