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, the authors provide 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 recent empirical literature, the authors´ results suggest that short-term interest rates tend to react appropriately to the data flow, while longer-term interest rates are not unduly influenced. The authors also show that market reactions tend to be in line with the RBNZ´s inflation-target objective.