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Some Benefits of Monetary-Policy Transparency in New Zealand

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Abstract

The Reserve Bank of New Zealand (RBNZ) is regarded as one of the most transparent central banks in the world. Recent research suggests that one benefit of such transparency is that financial markets better anticipate a central bank's reaction to incoming data and, in relation, do not over-react to macroeconomic data surprises. In this paper, the authors provide institutional details of how the RBNZ communicates its monetary-policy decisions to financial markets and conduct an events analysis to test whether there are any transparency benefits in the pricing of New Zealand's yield curve. In line with recent empirical literature, the authors´ results suggest that short-term interest rates tend to react appropriately to the data flow, while longer-term interest rates are not unduly influenced. The authors also show that market reactions tend to be in line with the RBNZ´s inflation-target objective.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 57 (2007)
Issue (Month): 11-12 (December)
Pages: 521-539

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Handle: RePEc:fau:fauart:v:57:y:2007:i:11-12:p:521-539

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Keywords: monetary policy; surprises; transparency; New Zealand;

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References

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Citations

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Cited by:
  1. Özer Karagedikli & Rishab Sethi & Christie Smith & Aaron Drew, 2008. "Changes in the transmission mechanism of monetary policy in New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2008/03, Reserve Bank of New Zealand.
  2. Andrew Coleman & Özer Karagedikli, 2008. "The Relative Size of New Zealand Exchange Rate and Interest Rate Responses to News," Working Papers 08_08, Motu Economic and Public Policy Research.
  3. Richhild Moessner & William R. Nelson, 2008. "Central Bank Policy Rate Guidance and Financial Market Functioning," International Journal of Central Banking, International Journal of Central Banking, vol. 4(4), pages 193-226, December.
  4. Mirkov, Nikola & Natvik, Gisle James, 2013. "Announcements of Interest Rate Forecasts: Do Policymakers Stick to Them?," Working Papers on Finance 1303, University of St. Gallen, School of Finance.
  5. repec:use:tkiwps:1205 is not listed on IDEAS
  6. Clemens J.M. Kool & Daniel L. Thornton, 2012. "How effective is central bank forward guidance?," Working Papers 2012-063, Federal Reserve Bank of St. Louis.

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