The effects of monetary policy shocks on New Zealand's exchange rate: A thesis submitted in partial fulfilment of the requirements for the Degree of Master of Commerce and Management

Abstract

This thesis examines the impact of monetary policy shock on the exchange rate in New Zealand. Monetary policy shock is the unexpected change in monetary policy that is determined by the Reserve Bank of New Zealand (RBNZ). Since March 1999, RBNZ has adopted Official Cash Rate (OCR) to be the monetary policy instrument. An increasing on OCR indicates monetary policy contraction from RBNZ. The empirical analyses are conducted using the models due to Zettelmeyer (2004) and Kearns & Manners (2006) that can be estimated by OLS. Monetary policy shocks are identified by the reactions of both 30-day and 90-day interest rates to OCR announcements. The sample period is from 1999 through 2010. The result indicates that there is no exchange rate puzzle in New Zealand. In addition, the monetary policy shocks have no significant impact on New Zealand’s exchange rate.