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Asymmetric Monetary Policy in Australia

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  • Shawn Chen-Yu Leu

    ()
    (Department of Economics and Finance, La Trobe University)

  • Jeffrey Sheen

    ()
    (School of Economics and Political Science University of Sydney)

Abstract

We find evidence for asymmetric behaviour in Australian monetary policy. During 1984-1990, the Reserve Bank of Australia acted with considerable discretion yielding poor performance of an interest rate rule. However it behaved asymmetrically to inflation and the output gap in downturns and upturns. On embracing inflation targeting from 1991, it enhanced its credibility by anchoring inflation expectations. Not only did its actions become more predictable in 1991-2002, it responded asymmetrically only to output, switching to act more acutely in downturns. While its asymmetric behaviour could result from asymmetric preferences or non-linear aggregate supply, our results support the former explanation.

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Bibliographic Info

Paper provided by School of Economics, La Trobe University in its series Working Papers with number 2005.02.

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Length: 32 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:ltr:wpaper:2005.02

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Web page: http://www.latrobe.edu.au/economics
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Keywords: interest rate rules; asymmetric preferences; non-linear Phillips curve; generalized method of moments; inflation targeting; credibility EDIRC Provider-Institution: RePEc:edi:smlatau;

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References

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Citations

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Cited by:
  1. Leu, Shawn Chen-Yu & Sheen, Jeffrey, 2011. "A small New Keynesian state space model of the Australian economy," Economic Modelling, Elsevier, vol. 28(1-2), pages 672-684, January.
  2. Jaromír Baxa & Roman Horváth & Bořek Vašíček, 2010. "How Does Monetary Policy Change? Evidence on Inflation Targeting Countries," Working Papers IES 2010/26, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2010.
  3. Borek Vasicek, 2010. "Is Monetary Policy in New Members States Asymmetric?," William Davidson Institute Working Papers Series wp1005, William Davidson Institute at the University of Michigan.
  4. Hoffmann, Andreas, 2009. "Fear of depression - Asymmetric monetary policy with respect to asset markets," MPRA Paper 17522, University Library of Munich, Germany.

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