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The Implementation of Monetary Policy in Australia

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  • Ric Battellino

    (Reserve Bank of Australia)

  • John Broadbent

    (Reserve Bank of Australia)

  • Philip Lowe

    (Reserve Bank of Australia)

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    Abstract

    In January 1990, the Reserve Bank of Australia (RBA) began announcing and explaining changes in the target cash rate. This has increased public understanding of monetary policy and, by increasing the attention given to changes in interest rates, has affected the way in which changes in policy are transmitted to the economy. In addition, the discipline of having to announce and explain changes in the target cash rate to the public has led to a clearer focus on the objectives of monetary policy within the RBA and improved the accountability of the Bank. It has also led to a substantial decline in the volatility of short-term interest rates and more rapid pass-through of changes in the target cash rate into deposit and lending rates. In Australia, as in many other countries, interest rates have tended to be adjusted in a series of steps in the same direction. In part, this can be explained in terms of the uncertainty that policy-makers face, and the costs involved in frequently reversing the direction of interest-rate changes.

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    File URL: http://www.rba.gov.au/publications/rdp/1997/pdf/rdp9703.pdf
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    Bibliographic Info

    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9703.

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    Date of creation: Jul 1997
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    Handle: RePEc:rba:rbardp:rdp9703

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    References

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    1. N. Gregory Mankiw, 1987. "The Optimal Collection of Seigniorage: Theory and Evidence," NBER Working Papers 2270, National Bureau of Economic Research, Inc.
    2. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
    3. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers, Princeton, Department of Economics - Financial Research Center 91, Princeton, Department of Economics - Financial Research Center.
    4. Philip Lowe & Luci Ellis, 1997. "The Smoothing of Official Interest Rates," RBA Annual Conference Volume, in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
    5. Glenn D. Rudebusch, 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Working Papers in Applied Economic Theory 95-02, Federal Reserve Bank of San Francisco.
    6. Bob Rankin, 1992. "The Cash Market in Australia," RBA Research Discussion Papers, Reserve Bank of Australia rdp9214, Reserve Bank of Australia.
    7. Philip Lowe, 1995. "The Link between the Cash Rate and Market Interest Rates," RBA Research Discussion Papers, Reserve Bank of Australia rdp9504, Reserve Bank of Australia.
    8. Barro, Robert J., 1989. "Interest-rate targeting," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(1), pages 3-30, January.
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    Cited by:
    1. Tore Ellingsen & Ulf Soderstrom, 2001. "Monetary Policy and Market Interest Rates," American Economic Review, American Economic Association, vol. 91(5), pages 1594-1607, December.
    2. Ellingsen, Tore & Söderström, Ulf, 2004. "Why Are Long Rates Sensitive to Monetary Policy?," Working Paper Series 160, Sveriges Riksbank (Central Bank of Sweden).

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