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Survey expectations of monetary conditions in New Zealand: determinants and implications for the transmission of policy

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Abstract

In this paper, we use a unique database on expected monetary conditions from the Reserve Bank of New Zealand Survey of Expectations to study how policy signals are transmitted. In order to exploit the ordinal nature of the data, we run an ordered probit model where expected monetary conditions are a function of expected financial market variables and some "narrative" measures of monetary policy shocks. Although conclusions about the impact of policy shocks on public's expectations are somewhat tentative, the results could be interpreted as evidence of "divergence" between the Reserve Bank's and the public's view. Overall, the paper shows that surveyed expectations contain valuable information on the transmission of monetary policy. On average, respondents place more weight on the interest rate than on the exchange rate, and particularly so in sectors that are less exposed to international trade. Moreover, the relative weights vary substantially over time as different shocks hit the economy. We test for the presence of regime shifts in expectations due to changes to either the institutional framework or the implementation system. We find a significant effect of the introduction of the Reserve Bank Act in 1989.

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  • Leo Bonato & Robert St. Clair & Rainer Winkelmann, 1999. "Survey expectations of monetary conditions in New Zealand: determinants and implications for the transmission of policy," Reserve Bank of New Zealand Discussion Paper Series G99/6, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbdps:1999/06
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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Discussion%20papers/1999/g99-6.pdf
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    1. Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, vol. 80(4), pages 714-735, September.
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    6. Anonymous, 1999. "Monetary policy implementation: changes to operating procedures," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, March.
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    8. Economics Department, 1996. "Summary indicators of monetary conditions," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 59, September.
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    Cited by:

    1. Maritta Paloviita & Matti Virén, 2005. "The role of expectations in the inflation process in the euro area," Macroeconomics 0508031, University Library of Munich, Germany.
    2. repec:zbw:bofrdp:2005_006 is not listed on IDEAS
    3. Paloviita, Maritta & Virén, Matti, 2005. "The role of expectations in the inflation process in the euro area," Bank of Finland Research Discussion Papers 6/2005, Bank of Finland.
    4. Hans-Jurgen Engelbrecht & Robin Loomes, 2002. "The unintended consequences of using an MCI as an operational monetary policy target in New Zealand: Suggestive evidence from rolling regressions," New Zealand Economic Papers, Taylor & Francis Journals, vol. 36(2), pages 217-233.
    5. Maritta Paloviita & Matti Virén, 2005. "The role of expectations in the inflation process in the euro area," Macroeconomics 0508031, University Library of Munich, Germany.

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