Central Bank Target Rates and Term Structure of Interest Rates: A Study of Six Asia-pacific Countries

Granger causality tests find that the official interest rate (OIR) changes made by the central banks of Australia, China, India, South Korea, Philippines, and Taiwan cause OIR changes at other central banks, but no central bank dominates in its impact. Event study tests show that OIR announcements impact short-term market interest rates more than long-term market interest rates in their own countries. Our study shows that announcements by India and China have the largest impact on the other four countries. Markets anticipate OIR changes consistent with the objective of transparency by monetary authorities to reduce economy uncertainty for market participants.