Using financial market information in monetary policy: some examples from New Zealand

 

Keywords: Financial markets, Monetary policy, Information extraction, Analytical tools

Summary: Central bankers have long recognised that financial markets contain useful information for macroeconomic surveillance and the conduct of monetary policy. Financial markets provide a valuable window for timely information on (domestic and global) economic and financial conditions. This is due to the vast amount of information aggregated by markets, to their forward looking nature, and to the fact that future asset returns are sensitive to economic conditions. Central bankers also pay close regard to financial markets because certain key markets are important initial linkages in the monetary policy transmission mechanism in many economies.