The Relative Size of New Zealand Exchange Rate and Interest Rate Responses to News

Andrew Coleman () and Ozer Karagedikli
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Andrew Coleman: Motu Economic and Public Policy Research

No 08_08, Working Papers from Motu Economic and Public Policy Research

Abstract: 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.

Keywords: New Zealand; interest rates; exchange rates; news (search for similar items in EconPapers)
Pages: 26 pages
Date: 2008-06
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac, nep-mon and nep-opm
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Citations: View citations in EconPapers (2)

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Working Paper: The relative size of New Zealand exchange rate and interest rate responses to news (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:mtu:wpaper:08-08

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