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Some benefits of monetary policy transparency in New Zealand

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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, we provide some 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 the recent empirical literature, our results suggest that short-term interest rates tend to react appropriately to the data flow, while longer term interest rates are not unduly influenced. We also show that market reactions tend to be in line with the RBNZ's inflation target objective.

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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2008/01.

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Length: 36 p.
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:nzb:nzbdps:2008/01

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Cited by:
  1. Andrew Coleman & Özer Karagedikli, 2008. "The relative size of New Zealand exchange rate and interest rate responses to news," Reserve Bank of New Zealand Discussion Paper Series, Reserve Bank of New Zealand DP2008/12, Reserve Bank of New Zealand.
  2. Mirkov, Nikola & Natvik, Gisle James, 2013. "Announcements of Interest Rate Forecasts: Do Policymakers Stick to Them?," Working Papers on Finance, University of St. Gallen, School of Finance 1303, University of St. Gallen, School of Finance.
  3. repec:use:tkiwps:1205 is not listed on IDEAS
  4. Clemens J.M. Kool & Daniel L. Thornton, 2012. "How effective is central bank forward guidance?," Working Papers, Federal Reserve Bank of St. Louis 2012-063, Federal Reserve Bank of St. Louis.
  5. 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, Reserve Bank of New Zealand DP2008/03, Reserve Bank of New Zealand.
  6. 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, International Journal of Central Banking, vol. 4(4), pages 193-226, December.

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