Operating Procedures and the Expectations Theory of the Term Structure of Interest Rates: A Note on the New Zealand Experience from 1989 to 2008

Alfred Guender and Allan G.J. Wu

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: The operating procedure of a central bank influences in no small measure whether the behavior of interest rates is consistent with the expectations hypothesis. In New Zealand, the predictive content of the term spread improves markedly in the wake of the switch from a quantity-based to a price-based operating procedure in March 1999. The Official Cash Rate system has made it easier for market participants to understand the day-to-day conduct of monetary policy. As a result, market interest rates have become more predictable, thereby contributing to the success of the expectations hypothesis in explaining the behavior of yields on very short-dated financial instruments.

JEL-codes: E43 E52 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2010-11-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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