New Discussion Paper available on RBNZ website 27/3/12

The following Discussion Papers have been released on the Reserve Bank's website. The discussion papers are available at http://www.rbnz.govtnz/research/discusspapers/

DP2012/01

The financial accelerator and monetary policy rules (PDF 486KB)
By Güneş Kamber and Christoph Thoenissen
http://www.rbnz.govt.nz/research/discusspapers/dp12_01.pdf
The ability of financial frictions to amplify the output response of monetary policy, as in the financial accelerator model of Bernanke et al (1999), is analysed for a wider class of policy rules where the policy interest rate responds to both inflation and the output gap. When policy makers respond to the output gap as well as inflation, the standard financial accelerator model reacts less to an interest rate shock than does a comparable model without an operational financial accelerator mechanism. In recessions, when firm-specific volatility rises, financial acceleration due to financial frictions is further reduced, even under pure inflation targeting.

DP2012/02
Modifying Gaussian term structure models when interest rates are near the zero lower bound (PDF 478KB)
By Leo Krippner
http://www.rbnz.govt.nz/research/discusspapers/dp12_02.pdf
With nominal interest rates near the zero lower bound (ZLB) in many major economies, it is theoretically untenable to apply Gaussian affine term structure models (GATSMs) while ignoring their inherent material probabilities of negative interest rates. I propose correcting that deficiency by adjusting the entire GATSM term structure with an explicit function of maturity that represents the optionality associated with the present and future availability of physical currency. The resulting ZLB-GATSM framework remains tractable, producing a simple closed-form analytic expression for forward rates and requiring only elementary univariate numerical integration (over time to maturity) to obtain interest rates and bond prices. I demonstrate the salient features of the ZLB-GATSM framework using a two-factor model. An illustrative estimation with U.S. term structure data indicates that the ZLB-GATSM "shadow short rate" provides a useful gauge of the stance of monetary policy; in particular becoming negative when the U.S. policy rate reached the ZLB in late 2008, and moving more negative with subsequent unconventional monetary policy easings.

DP 2012/03
The information content of central bank interest rate projections: Evidence from New Zealand (294KB)
By Gunda-Alexandra Detmers and Dieter Nautz
http://www.rbnz.govt.nz/research/discusspapers/dp12_03.pdf
The Reserve Bank of New Zealand was the first central bank to publish interest rate projections as a tool for forward guidance of monetary policy. This paper provides new evidence on the information content of interest rate projections for market expectations about future short-term rates before and during the financial crisis. While the information content of interest rate projections decreases with the forecast horizon in both periods, we find that their impact on market expectations has declined significantly since the outbreak of the crisis.

ENDS

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