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Volume 33 Number 2 December 2008 |
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Monetary Policy Surprises and the Bank Bill Term Premium |
| Kathleen Walsh and David Tan
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Abstract |
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Has Australia's shift to an inflation-targeting monetary policy regime had a significant impact on investors' perception of interest-rate risks in the market? We find that since 1990, unanticipated adjustments to monetary policy have had a significantly larger impact on the term premium. This coincides with Australia's adoption of an inflation-targeting monetary policy. Since its implementation, unanticipated adjustments have conveyed more information to financial markets regarding the interest-rate risks in the economy. This new information is immediately assessed and accounted for in the term structure, consequently influencing the term premium in the direction of the unanticipated cash rate adjustment.
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Keywords |
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UNANTICIPATED MONETARY POLICY; TERM PREMIUM.
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Contact DetailsKathleen WalshDiscipline of Finance, The University of Sydney, NSW 2006. Email: kathyw@econ.usyd.edu.au David Tan The University of New South Wales, Sydney NSW 2052. Email: dtwtan@gmail.com |
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