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Monetary Policy Reaction Functions in Australia

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  • GORDON de BROUWER
  • JAMES GILBERT

Abstract

Interest-rate functions are estimated to assess the stability of Australian monetary policy in the post-float period. The results indicate that the Reserve Bank of Australia (RBA) is forward-looking, focusing on outcomes 1 year ahead. The weight on inflation in the RBA reaction function has increased, and that on output has decreased, since inflation targeting. This is robust to various definitions of the output gap. The RBA also appears to take modest account of sustained movements in the effective exchange rate. Point estimates of the implied neutral rate of interest are from 5 to 5.5 per cent. Copyright 2005 The Economic Society Of Australia.

Suggested Citation

  • GORDON de BROUWER & JAMES GILBERT, 2005. "Monetary Policy Reaction Functions in Australia," The Economic Record, The Economic Society of Australia, vol. 81(253), pages 124-134, June.
  • Handle: RePEc:bla:ecorec:v:81:y:2005:i:253:p:124-134
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    Cited by:

    1. Shawn Chen-Yu Leu & Jeffrey Sheen, 2006. "Asymmetric Monetary Policy in Australia," The Economic Record, The Economic Society of Australia, vol. 82(s1), pages 85-96, September.
    2. Shawn Chen-Yu Leu, 2006. "A New Keynesian Perspective of Monetary Policy in Australia," Working Papers 2006.01, School of Economics, La Trobe University.
    3. Daniel Buncic & Martin Melecky, 2008. "An Estimated New Keynesian Policy Model for Australia," The Economic Record, The Economic Society of Australia, vol. 84(264), pages 1-16, March.
    4. Eurilton Araújo & Débora Gouveia, 2013. "Calvo-type rules and the forward-looking behavior of inflation targeting central banks," Economics Bulletin, AccessEcon, vol. 33(3), pages 2042-2051.
    5. Baxa, Jaromír & Horváth, Roman & Vašíček, Bořek, 2014. "How Does Monetary Policy Change? Evidence On Inflation-Targeting Countries," Macroeconomic Dynamics, Cambridge University Press, vol. 18(03), pages 593-630, April.
    6. David Shepherd & Robert Dixon, 2008. "The Cyclical Dynamics and Volatility of Australian Output and Employment," The Economic Record, The Economic Society of Australia, vol. 84(264), pages 34-49, March.
    7. Jonathan Payne & Lawrence Uren, 2014. "Economic Policy and the Great Depression in a Small Open Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(2-3), pages 347-370, March.
    8. Nejla Adanur Aklan & Mehmet Nargelecekenler, 2008. "Taylor Rule in Practice: Evidence from Turkey," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 14(2), pages 156-166, May.
    9. Andrew Hodge & Tim Robinson & Robyn Stuart, 2008. "A Small BVAR-DSGE Model for Forecasting the Australian Economy," RBA Research Discussion Papers rdp2008-04, Reserve Bank of Australia.
    10. Mardi Dungey & Adrian Pagan, 2009. "Extending a SVAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 85(268), pages 1-20, March.
    11. Kevin Lee & Nilss Olekalns & Kalvinder Shields, 2013. "Meta Taylor Rules for the UK and Australia; Accommodating Regime Uncertainty in Monetary Policy Analysis Using Model Averaging Methods," Manchester School, University of Manchester, vol. 81, pages 28-53, October.
    12. repec:kap:iaecre:v:14:y:2008:i:2:p:156-166 is not listed on IDEAS
    13. Kevin Lee & Nilss Olekalns & Kalvinder Shields & Zheng Wang, 2012. "Australian Real-Time Database: An Overview and an Illustration of its Use in Business Cycle Analysis," The Economic Record, The Economic Society of Australia, vol. 88(283), pages 495-516, December.
    14. Maciej Ryczkowski, 2016. "Poland as an inflation nutter:The story of successful output stabilization," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 34(2), pages 363-392.
    15. Kevin Lee, Nilss Olekalns, Kalvinder Shields and Zheng Wang, 2011. "The Australian Real?Time Datbase: An Overview and an Illustration of its Use in Business Cycle Analysis," Department of Economics - Working Papers Series 1132, The University of Melbourne.

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