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International Linkages and Macroeconomic News Effects on Interest Rate Volatility - Australia and the US'

Listed author(s):
  • Kim, Suk-Joong
  • Sheen, Jeffrey

We examine international linkages between daily time series of US and Australian 3 month Treasury Bills and 10 year Government Bonds from 1987-95, paying particular attention to the effects of macroeconomic announcements in both countries. The 2 country's interest rate data are modelled by a bivariate EGARCH formulation. The results suggest that market participants believed the Reserve Bank of Australia targetted the CPI, while the Federal Reserve targetted economic activity. US macroeconomic activity announcements significantly moved Australian interest rates, particularly at the short end. Australian interest rates moved significantly in response to the previous day's US interest rate shocks. The conditional volatilities of the Australian interest rate changes were also significantly influenced by lagged US interest rate shocks, as well as by surprises in US macroeconomic announcements. Some macroeconomic news announcements raised conditional volatilities, while others reduced them. Overall there was a remarkable and complex array of linkages between the 2 countries.

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File URL: http://hdl.handle.net/2123/6742
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Paper provided by University of Sydney, School of Economics in its series Working Papers with number 11.

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Date of creation: Oct 1998
Handle: RePEc:syd:wpaper:2123/6742
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Sydney, NSW 2006

Phone: 61 +2 9351 5055
Fax: 61 +2 9351 4341
Web page: http://sydney.edu.au/arts/economics
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