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What Moves Yields in Australia?

Author

Listed:
  • Frank Campbell

    (Reserve Bank of Australia)

  • Eleanor Lewis

    (Reserve Bank of Australia)

Abstract

In this paper, we measure how the fixed-interest market in Australia assesses and responds to new economic information. We use high-frequency data, precise announcement times and market-based forecasts to measure the reaction of bill and bond yields to news. The period covered is from January 1994 to September 1997. We find that announcements about US economic news have had a large impact on yields in Australia – especially bond yields. Of the domestic announcements, the market responds to: monetary policy announcements, the CPI, the labour force and AWOTE, as well as a range of other economic statistics. We also find that the fixed-interest market seems to distinguish between the information contained in different economic announcements and that traders systematically respond to the size and direction of any unanticipated component of these announcements. The results suggest that the market perceives that information on prices, employment and wages is more important in the Reserve Bank’s decisions about monetary policy than are other indicators of economic activity. Taken in sum, the results also suggest some consistency of response to news in the fixed-interest market in Australia.

Suggested Citation

  • Frank Campbell & Eleanor Lewis, 1998. "What Moves Yields in Australia?," RBA Research Discussion Papers rdp9808, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp9808
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    File URL: http://www.rba.gov.au/publications/rdp/1998/pdf/rdp9808.pdf
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    References listed on IDEAS

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    1. Gordon de Brouwer & Luci Ellis, 1998. "Forward-looking Behaviour and Credibility: Some Evidence and Implications for Policy," RBA Research Discussion Papers rdp9803, Reserve Bank of Australia.
    2. Hardouvelis, Gikas A., 1988. "Economic news, exchange rates and interest rates," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 23-35, March.
    3. Tro Kortian & James O’Regan, 1996. "Australian Financial Market Volatility: An Exploration of Cross-country and Cross-market Linkages," RBA Research Discussion Papers rdp9609, Reserve Bank of Australia.
    4. Edison, Hali J, 1997. "The Reaction of Exchange Rates and Interest Rates to News Releases," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(2), pages 87-100, April.
    5. Urich, Thomas & Wachtel, Paul, 1981. "Market Response to the Weekly Money Supply Announcements in the 1970s," Journal of Finance, American Finance Association, vol. 36(5), pages 1063-1072, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.
    2. Zettelmeyer, Jeromin, 2004. "The impact of monetary policy on the exchange rate: evidence from three small open economies," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 635-652, April.
    3. Gasbarro, Dominic & Monroe, Gary S., 2004. "The impact of monetary policy candidness on Australian financial markets," Journal of Multinational Financial Management, Elsevier, vol. 14(1), pages 35-46, February.
    4. Jones, Brad & Lin, Chien-Ting & Masih, A. Mansur M., 2005. "Macroeconomic announcements, volatility, and interrelationships: An examination of the UK interest rate and equity markets," International Review of Financial Analysis, Elsevier, vol. 14(3), pages 356-375.
    5. Rogers, J. M. & Siklos, P. L., 2003. "Foreign exchange market intervention in two small open economies: the Canadian and Australian experience," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 393-416, June.

    More about this item

    Keywords

    news; economic announcements; financial markets; interest rates;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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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