By applying a high-frequency event study to Malaysia, we identify two factors in monetary policy announcements: a policy rate surprise and a path factor reflecting revisions to expected future policy path. The path factor has a notable impact on long-term government bond yields, corporate bond yields, and credit spreads, explaining a significant share of yield movements beyond the immediate policy rate change. The effects on longer-term yields persist for up to 25 days, while the impact on shorter-term yields dissipates more quickly. These findings provide new evidence on how central bank communication shapes market expectations outside of inflation-targeting regimes and contribute to the broader literature on monetary policy transmission in emerging markets.

By conducting a high-frequency event study similar to Gürkaynak et al. (2005), we find that two factors are needed to adequately capture the effects of monetary policy announcements for a non-inflation targeting emerging market economy, Malaysia. These factors are the surprise changes in the policy rate (Overnight Policy Rate, OPR) and the information about the future path of monetary policy. We find that the path factor has a strong influence on long-term government bond yields, corporate bond yields and spreads. Our findings are indicative of the view that monetary policy communication is mostly about revealing information pertaining to the central bank’s assessment of the economic outlook, as opposed to an unconditional binding commitment to follow a specific policy path.

By using administrative data from New Zealand, we assess the relative importance of job-finding, and job-to-job transition rates for wage dynamics. We exploit the regional variation and find that wages are closely linked to job-to-job transitions and less so to the job- finding rate. Further, the impact of the job-to-job transition rate is stronger at the lower half of the wage distribution. Overall, our findings are similar to Karahan et al. (2017) for the US, which support the prominence of on-the-job search for cyclical wage dynamics.

Many studies have found that combining forecasts improves predictive accuracy. An often-used approach developed by Granger and Ramanathan (GR, 1984) utilises a linear-Gaussian regression model to combine point forecasts. This paper generalises their approach for an asymmetrically distributed target variable. Our copula point forecast combination methodology involves fitting marginal distributions for the target variable and the individual forecasts being combined; and then estimating the correlation parameters capturing linear dependence between the target and the experts’ predictions. If the target variable and experts’ predictions are individually Gaussian distributed, our copula point combination reproduces the GR combination. We illustrate our methodology with two applications examining quarterly forecasts for the Federal Funds rate and for US output growth, respectively. The copula point combinations outperform the forecasts from the individual experts in both applications, with gains in root mean squared forecast error in the region of 40% for the Federal Funds rate and 4% for output growth relative to the GR combination. The fitted marginal distribution for the interest rate exhibits strong asymmetry.

Atif Mian is the John H. Laporte Jr. Class of 1967 Professor of Economics, Public Policy and Finance, and Director of the Julis-Rabinowitz Center for Public Policy and Finance at the Woodrow Wilson School of Public and International Affairs, at Princeton University. Professor Mian’s research has provided insight into the role of household debt and credit supply, both before and after the 2008 crisis. His book with Amir Sufi (University of Chicago), House of Debt (2014), explores the role of household debt in precipitating the crisis, its resolution and what needs to be done. Professor Mian visited the Reserve Bank in Wellington in December 2017. Ozer Karagedikli and Anella Munro, from the Economics Department of the Reserve Bank, interviewed him.

Every monetary policy decision by the Reserve Bank of New Zealand (RBNZ) is accompanied by a written statement about the state of the economy and the policy outlook, but only every second decision by a published interest rate forecast. We exploit this difference to study the relative influences of qualitative and quantitative forward guidance. We find that announcements that include an interest rate forecast and announcements that only include written statements lead to very similar market reactions across the yield curve. Our results imply that central bank communication is important, but that the exact form of that communication is less critical.

Atif Mian is the John H. Laporte Jr. Class of 1967 Professor of Economics, Public Policy and Finance, and Director of the Julis-Rabinowitz Center for Public Policy and Finance at the Woodrow Wilson School of Public and International Affairs, at Princeton University. Professor Mian’s research has provided insight into the role of household debt and credit supply, both before and after the 2008 crisis. His book with Amir Sufi (University of Chicago), House of Debt (2014), explores the role of household debt in precipitating the crisis, its resolution and what needs to be done. Professor Mian visited the Reserve Bank in Wellington in December 2017. Ozer Karagedikli and Anella Munro, from the Economics Department of the Reserve Bank, interviewed him.

This paper finds that the changing behaviour of inflation expectations can explain much of the unusually low inflation in New Zealand. Across several empirical specifications of the Phillips curve, we observe that inflation expectations have become more backward-looking. We also find that the speed of adjustment in inflation expectations, proxied by the spread between short- and longer-term inflation expectations, can explain the unusually low inflation.

We describe the origins of inflation targeting in New Zealand, and then use the four key attributes of inflation targeting-independence, the inflation target, transparency, and accountability-as an organizing device to analyze macroprudential policy "institutions"-the rules, regulations, and governance frameworks that implement macroprudential policies.

We use a data-rich approach, a factor-augmented vector autoregression (FAVAR), to identify idiosyncratic exchange rate shocks and examine the effects of these shocks on different sectors of the New Zealand economy. We find that an unexpected shock to the exchange rate has significant effects on relatively tradable sectors of the economy. Whilst this is expected, relatively ‘more’ non-tradable sectors of the economy are also influenced by shocks to the exchange rate, presumably due to their linkages to more trade-exposed sectors. We also find that exchange rate shocks explain a small proportion of overall business cycle variability, implying that the exchange rate acts as a buffer rather than as a source of shock.

Terms of trade shocks are important sources of fluctuations for the evolution of New Zealand business cycles. In this paper we attempt to identify the drivers of New Zealand’s terms of trade and how those dierent drivers aect the New Zealand economy. We use a two-block structural vector autoregression to identify shocks to world demand, export and import prices. Similar to Kilian (2009) in the case of real crude oil prices, we find that the common world demand shock is the key driver of New Zealand’s terms of trade. We also find that the shocks that are specific to New Zealand’s export prices are rare and have little significant eect on the New Zealand economy. Although each of the three shocks identified is found to unambiguously increase the terms of trade, the eects of each shock on New Zealand variables are very dierent.

We estimate a Factor Augmented Vector autoregression (FAVAR) to identify idiosyncratic exchange rate shocks and examine the effects of these shocks on different sectors of the economy. We find that an unexpected shock to the exchange rate has significant effects on the tradable sector of the economy. While this is expected, the nontradable sectors of the economy are also influenced by shocks to exchange rate. We argue that one important channel for this influence is the endogenous/cyclical nature of the population dynamics due to permanent and long term migration.

There has been a considerable academic and policy debate about the likely positive/adverse eects of central banks publishing their instrument forecasts. There is also a considerable debate whether the benets/adverse eects would depend on how the economic agents might perceive these forecasts. By using the Reserve Bank of New Zealand’s forecasts of its policy instrument, going back to 1997, we attempt to shed light on these issues by testing the following: 1) Does the publication of the forecasts of the policy rate by the Reserve Bank of New Zealand help economic agents to better forecast other macroeconomic variables? 2) Does the way in which agents interpret these forecast matter for their forecasting performance? To do so, we employ conditional forecasting techniques in a small Bayesian vectorautoregression. Implicitly we assume that agents use such a model for forecasting purposes. Our results show that the eect of this additional information conveyed in the RBNZ policy rate track on agents’ forecasting ability depends crucially on they way in which the agents interpret this information. We believe our ndings illustrate the diculties central banks face when communicating forward guidance to the public.

This 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.

We conduct an event study that examines how the New Zealand - US (NZ/US) and the Australia - US (AU/US) exchange rates responds to the release of Australian macroeconomic news including the CPI, GDP, trade balance, and monetary policy decisions. We use two different measures of the unanticipated component of the news announcements. First, we use the difference between the actual value of the data and a survey of market participants' expectations of that data announcement. Second, we use the immediate response of the AU/US exchange rate to the news announcement.Our study has three main conclusions: 1) We show that the effects of the macro news in one country can also transmit to another country via the non-bilateral exchange rate (probably in anticipation of future spill-over effects). 2) Combined with results that show that the AU/US exchange rate responds by very little to New Zealand news, the results suggest that the low variation in the New Zealand - Australia cross rate is because both currencies respond in a similar fashion to Australian (but not New Zealand) macroeconomic data. 3) We highlight the problems associated with the events studies in which the surprises are calculated from a market price and propose a new estimator that overcomes this problem.