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The reaction of the Australian financial markets to the interest rate news from the Reserve Bank of Australia and the U.S. Fed

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  • Kim, Suk-Joong
  • Nguyen, Do Quoc Tho

Abstract

This paper provides comprehensive evidence on the impacts of the Reserve Bank of Australia's (RBA) and the U.S. Fed's target interest rate announcement news on the Australian financial markets over the period 1998-2006. The RBA's news had a significant impact on the first moments of market returns/changes in line with a priori expectations, and the conditional volatility in most of the markets was significantly higher following the news. Asymmetric news effect is also observed for the Australian interest rates where markets tended to respond more strongly to unexpected rate rises than rate falls. While the U.S. Fed's news influenced only the USD/AUD exchange rate, the Australian market volatility was significantly lower in all market segments following the Fed's news.

Suggested Citation

  • Kim, Suk-Joong & Nguyen, Do Quoc Tho, 2008. "The reaction of the Australian financial markets to the interest rate news from the Reserve Bank of Australia and the U.S. Fed," Research in International Business and Finance, Elsevier, vol. 22(3), pages 378-395, September.
    • Handle: RePEc:eee:riibaf:v:22:y:2008:i:3:p:378-395
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    2. Mihaela NICOLAU, 2010. "Financial Markets Interactions between Economic Theory and Practice," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 2, pages 27-36.
    3. Corbet, Shaen & Dunne, John James & Larkin, Charles, 2019. "Quantitative easing announcements and high-frequency stock market volatility: Evidence from the United States," Research in International Business and Finance, Elsevier, vol. 48(C), pages 321-334.
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    6. Abbas Valadkhani & Sajid Anwar & Amir Arjonandi, 2012. "How to capture the full extent of price stickiness in credit card interest rates?," Economics Working Papers wp12-02, School of Economics, University of Wollongong, NSW, Australia.
    7. Indriawan, Ivan, 2020. "Market quality around macroeconomic news announcements: Evidence from the Australian stock market," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    8. Kakhkharov, Jakhongir & Bianchi, Robert J., 2022. "COVID-19 and policy responses: Early evidence in banks and FinTech stocks," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    9. Valadkhani, Abbas, 2013. "The pricing behaviour of Australian banks and building societies in the residential mortgage market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 133-151.
    10. Neda Todorova & Michael Soucek & Eduardo Roca, 2015. "Volatility spillovers from international commodity markets to the Australian equity market," Discussion Papers in Finance finance:201505, Griffith University, Department of Accounting, Finance and Economics.
    11. Smales, Lee A., 2012. "30-Day Interbank futures: Investigating the process of price discovery following RBA cash target rate announcements," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 1006-1023.
    12. Pawan Kumar & Vipul Kumar Singh, 2023. "Examining the Time Varying Spillover Dynamics of Indian Financial Indictors from Global and Local Economic Uncertainty," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(1), pages 99-121, March.
    13. Valadkhani, Abbas & Worthington, Andrew, 2014. "Asymmetric behavior of Australia's Big-4 banks in the mortgage market," Economic Modelling, Elsevier, vol. 43(C), pages 57-66.
    14. McCredie, Bronwyn & Docherty, Paul & Easton, Steve & Uylangco, Katherine, 2014. "The differential impact of monetary policy announcements and explanatory minutes releases on the Australian interest rate futures market," Pacific-Basin Finance Journal, Elsevier, vol. 29(C), pages 261-271.
    15. McCredie, Bronwyn & Docherty, Paul & Easton, Steve & Uylangco, Katherine, 2016. "The channels of monetary policy triggered by central bank actions and statements in the Australian equity market," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 46-61.
    16. Bronwyn McCredie, 2020. "The discrete and differential impact of monetary policy," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2919-2937, September.
    17. Cottrell, Simon & Karpavičius, Sigitas, 2021. "Does foreign monetary policy drive Australian banks' wholesale funding costs?," Global Finance Journal, Elsevier, vol. 50(C).
    18. Lou, Weifang & Yin, Xiangkang, 2014. "The impact of the global financial crisis on mortgage pricing and credit supply," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 336-363.
    19. Apergis, Nicholas, 2015. "The role of FOMC minutes for US asset prices before and after the 2008 crisis: Evidence from GARCH volatility modeling," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 100-107.
    20. Francesco, Guidi, 2008. "European Central Bank and Federal Reserve USA: monetary policy effects on the returns volatility of the Italian Stock Market Index Mibtel," MPRA Paper 10759, University Library of Munich, Germany.
    21. Kerry Liu, 2023. "America's decoupling from China: A perspective from stock markets," Economic Affairs, Wiley Blackwell, vol. 43(1), pages 32-52, February.

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