US Monetary Policy Announcements and the Term Structure of Interest Rate Differentials: Evidence from Hong Kong and Singapore
HKIMR Working Paper No. 09/2005
25 Pages Posted: 23 Aug 2007
Date Written: May 2005
This paper investigates the effect of US monetary policy announcements on the term structure of US interest rate differentials with Hong Kong and Singapore. US monetary policy surprises on domestic and international interest rates are measured by using data from short-term interest rate futures markets in all three countries around the FOMC meetings dates. Our results, based on careful treatment of interest rate endogeneity and time-varying risk premia in the futures markets, document that US monetary policy announcements significantly affect the behavior of the term structure of interest rates in the US and in both Asian countries. The implications of these results in light of the expectations hypothesis of the term structure of interest rates (EHTS) are also discussed.
Keywords: Monetary policy, interest rate futures, term structure of interest rates
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