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Financial Deregulation and the Monetary Transmission Mechanism

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  • Jerome Fahrer
  • Thomas Rohling

Abstract

Major changes to the Australian financial system in the 1980s may possibly have influenced the effects of monetary policy on economic activity. Using vector autoregressive econometric techniques we find that the deregulation of the financial system has made very little difference to the reduced form relationships among interest rates, employment growth, inflation and the growth rate of real credit. We find that interest rates are an important determinant of the business cycle, with credit being much less significant. We also find that monetary policy reacts to unexpected movements in real variables but does not react to surprises in the inflation rate.

Suggested Citation

  • Jerome Fahrer & Thomas Rohling, 1992. "Financial Deregulation and the Monetary Transmission Mechanism," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 25(1), pages 33-43, January.
    • Handle: RePEc:bla:ausecr:v:25:y:1992:i:1:p:33-43
    DOI: 10.1111/j.1467-8462.1992.tb00574.x
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    References listed on IDEAS

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    1. Adrian Blundell-Wignall & Frank Browne & Paolo Manasse, 1990. "Monetary Policy in the Wake of Financial Liberalisation," OECD Economics Department Working Papers 77, OECD Publishing.
    2. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
    3. Stephen Grenville, 1990. "The Operation of Monetary Policy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 23(2), pages 6-16, June.
    4. Glenn Stevens & Susan Thorp, 1989. "The Relationship between Financial Indicators and Economic Activity: Some Further Evidence," RBA Research Discussion Papers rdp8903, Reserve Bank of Australia.
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