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The Impact of Monetary Surprises on A ustralian Financial Futures Markets: An Insight into Cash Rate Target Announcements
Author(s) -
Lu Xinsheng,
Qu Ling,
Zhou Ying
Publication year - 2015
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.12048
Subject(s) - futures contract , monetary policy , economics , monetary economics , exchange rate , interest rate , volatility (finance) , cash , proxy (statistics) , bond , treasury , financial economics , finance , archaeology , history , machine learning , computer science
This paper investigates the impact of unanticipated A ustralian monetary policy changes on AUD / USD exchange rate futures, and 3‐year and 10‐year A ustralian T reasury bond futures, during the period from J anuary 1997 to A pril 2010. Our study contributes to the literature by using both the 30‐day and the 90‐day bank accepted bill ( BAB ) rates to disentangle the unexpected surprise component of monetary policy changes from overall cash rate target changes in the A ustralian money market, and by concurrently modelling the effects of monetary surprises and other key macroeconomic announcements in A ustralia. The empirical results suggest that the 30‐day BAB rate is the best proxy for the expected monetary policy actions. We find that the effect of monetary surprises on the volatility of the 3‐ and 10‐year bond future instruments is significant and persistent. We have also documented a strong monetary policy effect on the mean returns of the exchange rate futures, indicating that unexpected monetary policy adjustments have a significant impact on the level of the exchange rate movements rather than on the volatility of the FX futures market.