A Test of the Response to a Monetary Policy Regime Change in New Zealand

Abstract

In March 1999, the Reserve Bank of New Zealand changed its method of implementing monetary policy from targeting settlement cash to specifying an (official) Overnight Cash Rate (OCR). This paper explores some of the impacts of this, by comparing market movements before and after the change.

We find that, since the introduction of the OCR, key lending interest rates have been found to be more responsive to changes in official monetary policy, with a significant shortening of the half-life of interest rate changes. This suggests that monetary policy is now more efficient, while the speed of response supports the case for regarding the New Zealand banking market as competitive.

Citation

Tripe, D., McDermott, J. and Petro, B. (2005), "A Test of the Response to a Monetary Policy Regime Change in New Zealand", Fetherston, T.A. and Batten, J.A. (Ed.) Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century (Contemporary Studies in Economic and Financial Analysis, Vol. 86), Emerald Group Publishing Limited, Leeds, pp. 453-467. https://doi.org/10.1016/S1569-3759(05)86019-X