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Interest Parity, Monetary Policy and the Volatility of Australian Short‐Term Interest Rates: 1978–1982 *
Author(s) -
SHARPE IAN G.
Publication year - 1985
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1985.tb01995.x
Subject(s) - eurodollar , interest rate , economics , treasury , volatility (finance) , monetary economics , monetary policy , interest rate parity , financial economics , geography , archaeology
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.