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Responses of Monetary Policy to Inflation, the Output Gap, and Real Exchange Rates: The Case of Australia, Canada, and New Zealand

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  • Sergi Bruno S.

    (University of Messina)

  • Hsing Yu

    (Southeastern Louisiana University)

Abstract

This study shows that the policy rate reacts positively to the inflation rate, the output gap, and the lagged real effective exchange rate for Australia, Canada, and New Zealand and negatively to the current real effective exchange rate for Australia and Canada. The inflation rate has a greater impact on the policy rate for New Zealand than for Australia and Canada whereas the output gap has a greater effect on the policy rate for Australia and Canada than for New Zealand. Since the adoption of inflation targeting, the intercept of the monetary-policy function has decreased in each of the three countries, and the slope coefficient of the inflation rate has increased for Australia and New Zealand but has decreased for Canada.

Suggested Citation

  • Sergi Bruno S. & Hsing Yu, 2010. "Responses of Monetary Policy to Inflation, the Output Gap, and Real Exchange Rates: The Case of Australia, Canada, and New Zealand," Global Economy Journal, De Gruyter, vol. 10(2), pages 1-11, May.
  • Handle: RePEc:bpj:glecon:v:10:y:2010:i:2:n:5
    DOI: 10.2202/1524-5861.1596
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    Cited by:

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    2. Onanuga, Abayomi & Oshinloye, Michael & Onanuga, Olaronke, 2015. "Monetary Policy-Making in Nigeria: Does evidence support augmented Taylor Rule?," MPRA Paper 83329, University Library of Munich, Germany.
    3. Monadjemi Mehdi S., 2011. "Monetary Policy and Oil Prices," Global Economy Journal, De Gruyter, vol. 11(3), pages 1-18, September.

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