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Monetary policy implementation and uncovered interest parity: empirical evidence from Oceania

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Abstract

The close integration of Australian and New Zealand financial markets and the similarity of the monetary policy regimes provide the perfect backdrop for testing the empirical relevance of uncovered interest rate parity (UIP) in Oceania. We find that changes in the bilateral exchange rate have become more sensitive to the short-term interest differential over time. Most important, after the introduction of the Official Cash Rate regime in New Zealand, the responsiveness of the exchange rate has accelerated to such an extent that it is incompatible with UIP. Evidence on UIP over longer horizons is mixed with a 10-year horizon since 1990 providing the strongest support for the theory.

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  • Alfred Guender & Bevan Cook, 2010. "Monetary policy implementation and uncovered interest parity: empirical evidence from Oceania," Reserve Bank of New Zealand Discussion Paper Series DP2010/12, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbdps:2010/12
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    Cited by:

    1. Mehmet Altuntas, 2021. "The Interest Rate Parity in Fragile Five Countries: Evidence from Unit Root Tests with Breaks," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 8(2), pages 327-349, July.

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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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