Price Effects of Monetary Policy: The Case of a Small Open Economy of New Zealand

:This paper empirically examines the price effects of monetary policy shocks in New Zealand. Empirical analysis incorporates variables suggested by a hybrid New Open Economy Macroeconomic (NOEM) model, allowing both 'producer and local currency pricing to market (PCP and LCP-PTM)' activities of foreign exporters. Empirical findings indicate the absence of any price puzzle and show that New Zealand producer price index (PPI) responds more sluggishly than consumer price index (CPI) due to a restrictive domestic monetary stance; suggesting the differences between the exchange rate pass-through of monetary policy shocks to CPI and PPI resulting from exporters' different pricing strategies.