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Extracting expectations of New Zealand's Official Cash Rate from the bank-risk yield curve

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Author Info
Leo Krippner (Reserve Bank of New Zealand)

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Abstract

The hypothesis that a forward term-premium (FTP) exists between forward 1- day rates calculated from the New Zealand bank-risk yield curve and the corresponding ex-post Official Cash Rate (OCR) is tested by applying a single equation method for a cointegrated system to daily data from March 1999 to December 2001. The results indicate that the FTP is statistically significant for all forward horizons tested. The results also indicate that the estimates of the FTP appear to be an increasing function of the forward horizon, and the FTP may be tentatively represented as a simple monotonically-increasing analytical function. The model may be used in reverse to imply current ex-ante expectations of the OCR.

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Publisher Info
Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2002/01.

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Length: 35p
Date of creation: Mar 2002
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Handle: RePEc:nzb:nzbdps:2002/01

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Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Campbell, John Y, 1995. "Some Lessons from the Yield Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 129-52, Summer. [Downloadable!] (restricted)
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  2. Jean-Yves Paquette & David Stréliski, 1998. "The use of forward rate agreements in Canada," Bank of Canada Review, Bank of Canada, vol. 1998(Spring), pages 57-71. [Downloadable!]
  3. Leo Krippner, 1998. "Testing the predictive power of New Zealand bank bill futures rates," Reserve Bank of New Zealand Discussion Paper Series G98/8, Reserve Bank of New Zealand. [Downloadable!]
  4. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael Gordon, 2003. "Estimates of time-varying term premia for New Zealand and Australia," Reserve Bank of New Zealand Discussion Paper Series DP2003/06, Reserve Bank of New Zealand. [Downloadable!]
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This page was last updated on 2008-11-9.

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