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The Effect of Changes in Monetary Policy on Consumer and Business Confidence

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  • Stephen Kirchner

Abstract

This article examines the response of consumer and business confidence to five measures of change in Australian monetary policy. Actual, expected and surprise increases in the official cash rate target and related interest rates are shown to negatively impact consumer sentiment. Business confidence is less affected by increases in the cash rate target, but is negatively affected by an increase in the 90‐day bank accepted bill rate. Tests for model stability and asymmetries in the response of sentiment to increases and decreases in interest rates otherwise find only limited evidence for monetary policy having a perverse signalling effect on sentiment.

Suggested Citation

  • Stephen Kirchner, 2020. "The Effect of Changes in Monetary Policy on Consumer and Business Confidence," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 53(1), pages 118-125, March.
    • Handle: RePEc:bla:ausecr:v:53:y:2020:i:1:p:118-125
    DOI: 10.1111/1467-8462.12365
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    Cited by:

    1. Botha, Ferdi & Nguyen, Viet H., 2022. "Opposite nonlinear effects of unemployment and sentiment on male and female suicide rates: Evidence from Australia," Social Science & Medicine, Elsevier, vol. 292(C).
    2. Julien Pinter & Evzen Kocenda, 2021. "Media Treatment of Monetary Policy Surprises and Their Impact on Firms' and Consumers' Expectations," Working Papers IES 2021/30, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2021.
    3. Alžbeta Suhányiová & Ladislav Suhányi & Michaela Kočišová, 2023. "Business Confidence in the Sustainable Manufacturing Sector in the Context of Production, Production Prices, and Interest Rates," Sustainability, MDPI, vol. 16(1), pages 1-20, December.
    4. Dajčman Silvo, 2020. "Economic policy and confidence of economic agents – a causal relationship?," Review of Economic Perspectives, Sciendo, vol. 20(4), pages 471-484, December.
    5. Calvin He, 2021. "Monetary Policy, Equity Markets and the Information Effect," RBA Research Discussion Papers rdp2021-04, Reserve Bank of Australia.
    6. SYED, Sarfaraz Ali Shah, 2021. "Heterogeneous consumers in the Euro-Area, facing homogeneous monetary policy: Tale of two large economies," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).

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