Treasury Note and Bank Bill Rates, the Risk Premium and Australian Monetary Policy

Costas Karfakis and A.J. Phipps

No 215, Working Papers from University of Sydney, School of Economics

Abstract: This paper examines a link in the Australian monetary transmission mechanism based on the risk structure of certain interest rates. The bank-accepted bill and Treasury note rates cointegrate, and formal tests indicate that the risk premium was stationary after, but nonstationary before, the end of 1990. Well-defined and stable error-correction mechanisms also exist since December 1990, whereas prior to that they were unstable. These changes probably indicate a reduction in uncertainty and instability associated with the conduct of monetary-policy. The evidence also indicates that, since December 1990, the Reserve Back has been able to influence the bill rate by targeting the note rate.

Date: 1995-02
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http://hdl.handle.net/2123/7466

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Journal Article: Treasury Note and Bank Bill Rates, the Risk Premium and Australian Monetary Policy (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:syd:wpaper:2123/7466

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