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

Ian G. Sharpe

The Economic Record, 1985, vol. 61, issue 1, 436-444

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.

Date: 1985
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https://doi.org/10.1111/j.1475-4932.1985.tb01995.x

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