Monetary Policy Surprises and the Bank Bill Term Premium

Kathleen Walsh () and David Tan
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David Tan: The University of New South Wales, Sydney NSW 2052.

Australian Journal of Management, 2008, vol. 33, issue 2, 231-260

Abstract: 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.

Keywords: UNANTICIPATED MONETARY POLICY; TERM PREMIUM (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:33:y:2008:i:2:p:231-260

DOI: 10.1177/031289620803300202

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