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Some benefits of monetary policy transparency in New Zealand

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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