An Examination of the Differential Impact of Monetary Policy Announcements and Explanatory Minutes Releases on the Australian Interest Rate Futures Market

Abstract

Unlike US and European jurisdictions, Australian monetary policy announcements are not followed promptly by projections materials or statements that explain the decision process. This information is disclosed two weeks later when the explanatory minutes of the Reserve Bank board meeting are released. This paper is therefore the first study to exploit the unique features of the Australian monetary policy environment in order to examine the differential impact of monetary policy announcements and explanatory statements on the Australian interest rate futures market. We find that both monetary policy announcements and explanatory minutes releases have a significant impact on the returns and volatility of Australian interest rate futures contracts. When this impact is differentiated, the informational content of explanatory minutes releases is shown to elicit a larger response in returns. Further, the impact of monetary policy announcements is demonstrated to be affected by conditioning on the state of the economy. Specifically, returns respond asymmetrically to interest rate changes, intensify during the Global Financial Crisis, and are moderated by sentiment.