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Is Monetary Policy Too Tight?

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  • Ian R. Harper
  • G. C. Lim

Abstract

Monetary policy has steadily become tighter over the past twelve months. In various statements, the Government has indicated its view that monetary policy needs to be tight in order to subdue an ‘excessively high’ rate of growth of domestic demand. This article asks whether the current stance of monetary policy is now too restrictive and, if so, what the consequences might be for the pattern and growth of economic activity during 1989‐90. A number of scenarios based on alternative settings of monetary policy in 1989‐90 are derived from a short‐term simulation model of the Australian economy. The scenarios suggest that, if monetary policy remains at the current degree of tightness, the Australian economy may well experience a recession in 1989‐90. Some easing of monetary conditions is mandatory if a sharp and unnecessary slowdown of economic activity is to be avoided. Exactly how far monetary policy should be eased depends crucially on the rate of growth of autonomous investment.

Suggested Citation

  • Ian R. Harper & G. C. Lim, 1989. "Is Monetary Policy Too Tight?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 22(2), pages 15-24, June.
    • Handle: RePEc:bla:ausecr:v:22:y:1989:i:2:p:15-24
    DOI: 10.1111/j.1467-8462.1989.tb00320.x
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    Cited by:

    1. Des Moore, 1990. "Debt ‐ Is It Still A Problem?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 23(3), pages 17-32, September.
    2. B.R. Parmenter & Philip D. Adams, 1989. "Economic Prospects: 1988‐89 to 1994‐95," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 22(3), pages 5-15, September.
    3. Emilian Dobrescu, 2006. "Integration of Macroeconomic Behavioural Relationships and the Input-output Block (Romanian Modelling Experience)," EcoMod2006 272100018, EcoMod.
    4. Dobrescu, Emilian, 2001. "Evoluţia macromodelului economiei româneşti de tranzitie [The evolution of the Romanian model for the transition economy]," MPRA Paper 35798, University Library of Munich, Germany.
    5. Dobrescu, Emilian, 2006. "Macromodel of the Romanian market economy (version 2005)," MPRA Paper 35749, University Library of Munich, Germany.
    6. Giovanna Tagliabue, 2005. "Co-integrating relationship between terms of trade, money and current account: the Italian evidence," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 15(3-4), pages 99-111.

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