J. of Multi. Fin. Manag. 14 (2004) 35–46 The impact of monetary policy candidness on Australian financial markets Dominic Gasbarro a,∗ , Gary S. Monroe b a Murdoch Business School, Murdoch University, Murdoch, 6150 WA, Australia b The Australian National University, Australia Received 11 May 2001; accepted 6 November 2002 Abstract In January 1990, the Reserve Bank of Australia (RBA) changed from a covert disclosure policy to an overt disclosure policy. Using a sample from January 1986 to September 2001, this paper examines the reaction of Australian financial markets to rate target changes within each of these disclosure regimes. We find significantly different announcement day responses between the two disclosure regimes for both short-term and long-term treasury securities, and equity indices. Overall, the results indicate that when monetary policy is more transparent, the market reaction is less pronounced and, therefore, we conclude that fuller disclosure of monetary policy allows investors to more optimally manage their portfolios. © 2003 Elsevier B.V. All rights reserved. JEL classification: E52; E58; G14 Keywords: Monetary policy; Rediscount rate; Official cash rate 1. Introduction There are two distinct positions on how explicitly central banks should communicate monetary policy to market participants. One group argues that the option of choosing between public or non-public changes to monetary policy should reside with the central bank. The opposing group argues for a mandatory public statement of monetary policy change. This is an important issue since prior studies show that monetary policy actions of ∗ Corresponding author. Tel.: +61-893-602-126; fax: +61-893-105-004. E-mail address: gasbarro@central.murdoch.edu.au (D. Gasbarro). 1042-444X/$ – see front matter © 2003 Elsevier B.V. All rights reserved. doi:10.1016/S1042-444X(03)00037-9