The third in a series of research seminars (launched by the central bank last July) was held at the National Bank of Ukraine yesterday. Mr. Yuriy Gorodnichenko, Associate Professor at the University of California (Berkeley), presented the findings of his research paper entitled: "Inflation targeting does not anchor inflation expectations: Evidence from firms in New Zealand”: The topic of the seminar aroused keen interest, bringing together more than 40 representatives from public authorities, including the National Bank and ministries, as well as leading higher education institutions, experts on monetary policy and finances.
Mr. Yuriy Gorodnichenko and the co-authors of the research paper have found out that even in New Zealand, the first country to adopt inflation targeting 25 years ago, the central bank fails to anchor inflation expectations of businesses and households in defiance of the theory. Generally, firm managers have very little knowledge about the monetary policy objectives of the Reserve Bank of New Zealand, with most of them being unaware of who is the chair of the Fed. Moreover, and they are generally poorly informed about recent inflation dynamics. As a result, their forecasts of future inflation reflect high levels of uncertainty and are extremely dispersed. Firms' inflation expectations are neither close to the central bank’s inflation target nor do they appear to be stable at both 12-month and longer-run horizons. Similar results can be found in the U.S. using currently available surveys.
According to Mr. Yuriy Gorodnichenko, after a protracted period of low inflation in New Zealand and the U.S. the extent to which the central bank can anchor inflation expectations of households is limited despite the presence of a monetary policy “anchor”.
Despite the research findings, Mr. Yuriy Gorodnichenko pointed out that the Reserve Bank of New Zealand had succeeded in achieving its inflation targets. In view of the above, the economist welcomes the decision announced by the National Bank of Ukraine to adopt inflation targeting.
A full version of the research paper is available at link.
A video of the research seminar with the participation of Mr. Yuriy Gorodnichenko.
With the aim of arranging further research seminars, we encourage potential contributors to collaborate with us and present the findings of their research studies on issues related to the activities of the National Bank of Ukraine and the operation of the financial system. Proposals (with an indication of a suitable date for the seminar, and attached presentation materials, an executive summary and/or draft contributions) should be sent to the Research Division of the Monetary Policy and Economic Analysis Department for consideration via e-mail to: [email protected], [email protected]).