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What Do Financial Market Data Tell Us about Monetary Policy Transparency?

Author

Listed:
  • Jonathan Coppel

    (Reserve Bank of Australia)

  • Ellis Connolly

    (Reserve Bank of Australia)

Abstract

This paper attempts to discern from financial market data the impact of greater monetary policy transparency over the period since the late 1980s. We examine whether interest rate variability has changed, the degree to which financial markets anticipate policy moves and movements in the yield curve at the time of changes in monetary policy. Where possible, we compare the results for Australia with other countries. We find that interest rate volatility at the short end has fallen dramatically since the late 1980s. The extent to which market participants anticipate changes in the policy rate has gradually risen, as has the speed of reaction to interest rate announcements. Since the late 1990s, bill futures contract prices have responded to the Reserve Bank of Australia’s (RBA) commentaries on the economy. These results are consistent with an increase in the efficiency with which the market digests economic news. The results are quite similar across countries, and it is difficult to isolate from cross-country data any specific preferred model of monetary policy transparency.

Suggested Citation

  • Jonathan Coppel & Ellis Connolly, 2003. "What Do Financial Market Data Tell Us about Monetary Policy Transparency?," RBA Research Discussion Papers rdp2003-05, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2003-05
    as

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    File URL: https://www.rba.gov.au/publications/rdp/2003/pdf/rdp2003-05.pdf
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    References listed on IDEAS

    as
    1. Mr. Kevin Ross, 2002. "Market Predictability of ECB Policy Decisions: A Comparative Examination," IMF Working Papers 2002/233, International Monetary Fund.
    2. Frank Campbell & Eleanor Lewis, 1998. "What Moves Yields in Australia?," RBA Research Discussion Papers rdp9808, Reserve Bank of Australia.
    3. Mardi Dungey & Ben Hayward, 2000. "Dating Changes in Monetary Policy in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 33(3), pages 281-285, September.
    4. Daniel C. Hardy, 1998. "Anticipation and Surprises in Central Bank Interest Rate Policy: The Case of the Bundesbank," IMF Staff Papers, Palgrave Macmillan, vol. 45(4), pages 647-671, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    transparency; monetary policy; accountability; central banking;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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