6 Ocak 2013 Pazar

Most Famous Inflation Targeting Cases: New Zealand Case


New Zealand is the first country that has applied the inflation targeting policy before than the other countries.

If we want to talk about the history of inflation in New Zealand, we can say that they experienced a stretch of high inflation that lasted more than two decades beginning from 1967. New Zealand made two attempts during the 1970s to decrease the inflation that was around 20% level, by controlling wage and prices. In the early 1980s, a further attempt was made by comprehensive freeze on wages, prices, rents, interest rates, dividends, directors’ fees, and the exchange rates.[1] But unfortunately none of them was successful.

Therefore in December of 1989, the New Zealand Parliament agreed on inflation targeting as the country’s framework for conducting monetary policy.[2] The objectives of the Reserve Bank of New Zealand have changed significantly under the Reserve Bank of New Zealand Act 1989 that is mentioned above, and then became effective on February 1, 1990. The act made the price stability the most important objective of the monetary policy. The New Zealand started to target price stability with zero inflation.[3]
Annual Inflation Rates: New Zealand and Selected OECD Countries
 (Source: Donald T Brash, “Inflation targeting in New Zealand, 1988-2000”, http://www.rbnz.govt.nz/speeches/0086932.html)

We can see the progress from the above figure in New Zealand case. The graphic shows that after New Zealand started to apply inflation targeting they have been successful in decreasing the inflation to reasonable level where OECD average stands.


[1] Murray Sherwin, “Inflation Targeting New Zealand Experience”, http://dsp-psd.pwgsc.gc.ca/Collection/FB2-11-1997E-14.pdf
[2] Jennifer Wang, “Inflation Targeting”, Federal Reserve Region Focus, Winter 2005, p. 2.
[3] Adreas M.Fischer, “Inflation Targeting: The New Zealand and Canadian”, Cato Journal, Vol. 13, No. 1 (Spring/Summer) 1993, p. 2. 

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