The relative size of New Zealand exchange rate and interest rate responses to news
AbstractThis paper examines the relative size of the effects of New Zealand monetary policy and macroeconomic data surprises on the spot exchange rate, 2 and 5 year swap rate differentials, and the synthetic forward exchange rate schedule. We find that the spot exchange rate and 5 year swap rates respond by a similar magnitude to monetary surprises, implying there is little response of the forward exchange rate to this type of news. In contrast, the spot exchange rate responds by nearly three times as much as 5 year interest rates to CPI and GDP surprises, implying that forward rates appreciate to higher than expected CPI or GDP news. This is in contrast to standard theoretical models and US evidence. Lastly, we show that exchange rates but not interest rates respond to current account news. The implications of these results for monetary policy are considered. Classification-E50, J61, R21, R23
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Bibliographic InfoPaper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2008/12.
Length: 23 p.
Date of creation: Sep 2008
Date of revision:
Other versions of this item:
- 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.
- NEP-ALL-2008-09-29 (All new papers)
- NEP-CBA-2008-09-29 (Central Banking)
- NEP-IFN-2008-09-29 (International Finance)
- NEP-MAC-2008-09-29 (Macroeconomics)
- NEP-MON-2008-09-29 (Monetary Economics)
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.:
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