Economy – RBNZ Analytical Notes: Estimating Exchange Rate Pass-through in New Zealand

Using a range of estimation methods, we find that a 1% appreciation in the Trade Weighted Index (TWI) for the New Zealand dollar exchange rate can lead to a 0.004 to 0.01% decline in ex-fuel tradables prices within one quarter. In the long run, it can lead to a 0.05 to 0.3% decline in ex-fuel tradables prices. These estimates of incomplete pass-through are in line with estimates obtained for inflation-targeting economies in the related literature.  

Asymmetries in exchange rate pass-through can arise in different economic environments and across time. For example, pass-through tends to be stronger when the output gap is materially positive than when it is materially negative.

Deriving Indicators of Economic Activity from Traffic Sensor Data: (ref. https://govt.us20.list-manage.com/track/click?u=bd316aa7ee4f5679c56377819&id=15ef0a1d3b&e=f3c68946f8 )
Key findings

We develop monthly indicators of economic activity in New Zealand from granular data measuring traffic counts for both heavy and light traffic. Our indicators are highly correlated with New Zealand’s official measure of aggregate economic activity – Gross Domestic Product.
Our indicators can be disaggregated into regional components at a daily frequency, highlighting variation that would remain masked in aggregate measures.
These traffic indices provide an independent check on other high-frequency economic indicators, offer better monitoring of regional disparities in economic activity, and support timely policy advice in response to economic shocks. However, the higher volatility of these traffic indices means that they require careful interpretation, and these traffic indices should be used as part of a broader suite of economic indicators.

More Information
Our research and analysis: https://govt.us20.list-manage.com/track/click?u=bd316aa7ee4f5679c56377819&id=68e4cc931d&e=f3c68946f8

The Analytical Notes series encompasses a range of background papers prepared by Reserve Bank staff.
Unless otherwise stated, views expressed are those of the authors, and do not necessarily represent the views of the Reserve Bank.

Our research programme: https://govt.us20.list-manage.com/track/click?u=bd316aa7ee4f5679c56377819&id=eae460457c&e=f3c68946f8

Why we conduct research

In an ever-changing world, our research into different dimensions of the New Zealand economy is the bedrock enabling us to make well-informed policy decisions.
The RBNZ plays a central role in the New Zealand economy, setting monetary policy to support price stability, and acting as kaitiaki (guardians) of the financial system. To achieve our mandate, we draw on a comprehensive body of research into the New Zealand economy, which asks big questions ranging from how individual firms set their prices to what the future of money will look like in Aotearoa. Our researchers use advanced statistical techniques and macroeconomic modelling to unravel the intricate relationships between businesses, financial markets, and people that shape the New Zealand economy.
The insights from our research provide us with the understanding and confidence to make appropriate policy decisions for the benefit of New Zealanders, and also equip us to respond to future shocks.