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Changes in the Determinants of Inflation in Australia

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  • Jacqueline Dwyer

    (Reserve Bank of Australia)

  • Kenneth Leong

    (Reserve Bank of Australia)

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    Abstract

    In the past decade, inflation in Australia and most other industrialised countries has been extremely well behaved. An important question is whether this reflects a series of favourable shocks to prices or a more fundamental change in the inflation process. In this paper, we explore developments in each of the key explanators of inflation. We find that some of the determinants of inflation in Australia have exhibited unusual or structural change in recent years. Using a mark-up model of inflation, we attempt to identify whether there has been a change in the relationship between inflation and its determinants. We find some tentative evidence of change. Although this change is not statistically significant, it may be economically significant. It leaves open the possibility that some forces may be emerging that could help reduce the variability of inflation in response to shocks.

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    File URL: http://www.rba.gov.au/publications/rdp/2001/pdf/rdp2001-02.pdf
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    Bibliographic Info

    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2001-02.

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    Date of creation: May 2001
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    Handle: RePEc:rba:rbardp:rdp2001-02

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    Related research

    Keywords: determinants of inflation; import prices; productivity; wages;

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    References

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    1. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
    2. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
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    Cited by:
    1. Mardi Dungey, 2001. "International Shocks and the Role of Domestic Policy in Australia," CEPR Discussion Papers 443, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    2. Guy Debelle & Jenny Wilkinson, 2002. "Inflation Targeting and the Inflation Process: Some Lessons from an Open Economy," RBA Research Discussion Papers rdp2002-01, Reserve Bank of Australia.

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