People like puppies, and it’s a big problem for the economy

One of the key missions of the world's central banks is to guard against dramatic movements in the price of goods. It's a job that's as much about psychology as it is economics: Public confidence in central banks to maintain stable inflation actually helps keep prices in check. Or so the thinking goes.

Now, a new paper led by Saten Kumar of Auckland University of Technology finds that many businesses in New Zealand do not have a clear understanding of inflation rates, much less the role of the central bank. Nor do they show much interest in learning about it: Google searches for puppies, the paper points out, are consistently more popular than searches for economic data.

That disconnect between popular perception and economic reality can wind up undermining the power of monetary policy, the paper argues.

New Zealand is a particularly useful case study. The country adopted an explicit goal for inflation 25 years ago, making it a pioneer of so-called “inflation targeting." The practice is now standard at central banks around the world, including the Federal Reserve, with the target typically set at 2 percent.

More