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Interest Parity, Monetary Policy and the Volatility of Australian Short‐Term Interest Rates: 1978–1982

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  • IAN G. SHARPE

Abstract

The period since the introduction of the Treasury note tender in December 1979 has been characterized by increased variability of Australian short‐term interest rates. Using a methodology suggested by Evans, the increase in variability of the 90‐day commercial bill rate is decomposed into that attributable to domestic monetary policy, seasonal influences, covered international interest rate movements and other miscellaneous influences. The results suggest that after December 1979 Australian short‐term interest rates became more sensitive to surprises in the domestic monetary base, covered Eurodollar rate surprises and seasonal influences. Increased volatility of the covered Eurodollar rate also contributed to increased variance of domestic rates.

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  • Ian G. Sharpe, 1985. "Interest Parity, Monetary Policy and the Volatility of Australian Short‐Term Interest Rates: 1978–1982," The Economic Record, The Economic Society of Australia, vol. 61(1), pages 436-444, March.
    • Handle: RePEc:bla:ecorec:v:61:y:1985:i:1:p:436-444
    DOI: 10.1111/j.1475-4932.1985.tb01995.x
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    References listed on IDEAS

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    1. Frederic S. Mishkin, 1978. "Efficient-Markets Theory: Implications for Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(3), pages 707-752.
    2. Stephen J. Turnovsky & Katrina M. Ball, 1983. "Covered Interest Parity and Speculative Efficiency: Some Empirical Evidence for Australia," The Economic Record, The Economic Society of Australia, vol. 59(3), pages 271-280, September.
    3. David S. Jones & V. Vance Roley, 1982. "Rational Expectations, the Expectations Hypothesis, and Treasury Bill Yields: An Econometric Analysis," NBER Working Papers 0869, National Bureau of Economic Research, Inc.
    4. Turnovsky, Stephen J & Ball, Katrina M, 1983. "Covered Interest Parity and Speculative Efficiency: Some Empirical Evidence for Australia," The Economic Record, The Economic Society of Australia, vol. 59(166), pages 271-280, September.
    5. Mishkin, Frederic S, 1982. "Monetary Policy and Short-Term Interest Rates: An Efficient Markets-Rational Expectations Approach," Journal of Finance, American Finance Association, vol. 37(1), pages 63-72, March.
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