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Monetary Policy Surprises and the Bank Bill Term Premium

Author

Listed:
  • Kathleen Walsh

    (Discipline of Finance, The University of Sydney, NSW 2006.)

  • David Tan

    (The University of New South Wales, Sydney NSW 2052.)

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.

Suggested Citation

  • Kathleen Walsh & David Tan, 2008. "Monetary Policy Surprises and the Bank Bill Term Premium," Australian Journal of Management, Australian School of Business, vol. 33(2), pages 231-260, December.
    • Handle: RePEc:sae:ausman:v:33:y:2008:i:2:p:231-260
    DOI: 10.1177/031289620803300202
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    References listed on IDEAS

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    Cited by:

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    3. Vijay A Murik, 2013. "Measuring monetary policy expectations," Australian Journal of Management, Australian School of Business, vol. 38(1), pages 49-65, April.
    4. Robert E. Marks, 2009. "Anatomy of a Credit Crisis," Australian Journal of Management, Australian School of Business, vol. 34(1), pages 0-26, June.

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