RDP 2003-05: What do Financial Market Data Tell us About Monetary Policy Transparency? 3. Conclusion

There is no single model of monetary policy transparency, and communication arrangements of central banks differ in various respects depending partly on the governance and accountability structures in place in each country. Nonetheless there has been a common trend towards increased transparency among central banks over the past 10–15 years, including in Australia. This paper has attempted to discern the impact of this trend on the behaviour of financial markets using data for Australia and, where possible, international comparisons. We find that interest rate volatility at the short end has fallen dramatically in Australia since the late 1980s, and the extent to which market participants anticipate changes in the policy rate has gradually risen. This is consistent with markets being better informed about the policy process and about the likely impact of newly available information on monetary policy. The results suggest that the performance of Australian financial markets in these respects has been quite similar to the experience of a range of other countries.