A model of New Zealand’s post-war inflation

Abstract

Theoretical and empirical literature on inflation is extensive, and it abounds with diverse opinion. Principal works are of overseas origin; no substantial research has been published relating specifically to the New Zealand economy. This study does not attempt to develop a comprehensive theory of inflation, but has as its purpose the formulation of a simultaneous equation model to explain and predict movements in variables relevant to the inflationary process. The research has been conducted with New Zealand data and no econometric work on inflation yet published seems to have produced a model as embracing as the one advanced. This introduction has the following scope and content. First it conveys some idea of the extent of debate over what inflation is, this being done by brief references to various attempts at defining the phenomenon and to some of the different types of inflation advanced. Next, it questions more fundamentally 'what inflation is, and how, if' at all, the subject may be enlightened by further research. This leads on to derivation of an appropriate definition of inflation. Finally, an outline is given of the aspects of inflation to be investigated and the approach to be adopted.