Monetary Policy Surprises and Interest Rates : Evidence from Australia

This paper investigates the effect of changes in the cash rate on term structure of interest rates in Australia. We use the 90-day bank bill rate to decompose the unexpected and expected change in the cash rate target. We examine the effect of monetary policy on the volatility of interest rates across the term structure to measure the effect of monetary policy changes on the term structure of interest rates. We find the impact of a change in monetary policy declines with maturity, which is consistent with the literature and supports the market segmentation theory