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

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  • Karfakis, Costas
  • Phipps, Anthony

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.
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Suggested Citation

  • Karfakis, Costas & Phipps, Anthony, 1996. "Treasury Note and Bank Bill Rates, the Risk Premium and Australian Monetary Policy," Australian Economic Papers, Wiley Blackwell, vol. 35(67), pages 321-333, December.
    • Handle: RePEc:bla:ausecp:v:35:y:1996:i:67:p:321-33
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