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Monetary Policy and Funding Spreads

Anella Munro, Benjamin Wong

Fluctuations in the margins banks paid (over risk-free interest rates) on their funding costs have been a significant factor since the financial crisis of 2008/09. This paper uses a model to analyse the response of New Zealand’s monetary policy to such fluctuations since 1993, On average, the 90 day bill rate moved seven times as much as the initial shock to funding cost margins.