A note on the stability of real interest rates in Australia

The stability (stationarity) of real interest rates and surveys of expected inflation in Australia is analyzed over the period 1993(10) to 2001(10). We find that the real yields on Australian 2-, 5-, and 10-year bonds are stationary in levels whereas the real overnight cash and the bank-accepted bills (BABs) 90-day real rates are stationary subject to structural breaks occurring in September 1994 and October 1994, respectively. These breaks were identified by applying tests proposed by Nunes et al. [Oxf. Bull. Econ. Stat. 59 (1997) 435]. An application of the Nunes test to the surveyed expected inflation series points to a structural break in this series in January 1998.Our results indicate that while real long-term bond yields in Australia are relatively stable, short-term yields and expected inflation are susceptible to domestic policy changes and international influences.