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Assessing Australian Monetary Policy in the Twenty-First Century

Author

Listed:
  • Isaac Gross
  • Andrew Leigh

Abstract

Using the Reserve Bank of Australia’s MARTIN model we compare actual monetary policy decisions to a counterfactual in which the cash rate is set according to an optimal simple rule. We find that monetary policy played a crucial role in avoiding a potential recession in 2001 and mitigating the downturn in 2008-2009. By contrast we find that the cash rate was too high during 2016-2019, keeping inflation below the Reserve Bank’s target band. Optimal monetary policy in 2016-2019 would have involved a substantially lower cash rate and would have produced significantly better employment outcomes.

Suggested Citation

  • Isaac Gross & Andrew Leigh, 2022. "Assessing Australian Monetary Policy in the Twenty-First Century," CESifo Working Paper Series 9959, CESifo.
    • Handle: RePEc:ces:ceswps:_9959
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    References listed on IDEAS

    as
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    2. Alexander Ballantyne & Tom Cusbert & Richard Evans & Rochelle Guttmann & Jonathan Hambur & Adam Hamilton & Elizabeth Kendall & Rachael McCririck & Gabriela Nodari & Daniel M. Rees, 2020. "MARTIN Has Its Place: A Macroeconometric Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 96(314), pages 225-251, September.
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    Cited by:

    1. Martin, Chris & Lawson, Julie & Milligan, Vivienne & Hartley, Chris & Pawson, Hal & Dodson, Jago, 2023. "Towards an Australian Housing and Homelessness Strategy: understanding national approaches in contemporary policy," SocArXiv h5tja, Center for Open Science.
    2. Ross Garnaut & David Vines, 2023. "Monetary Policy Mistakes and Remedies: An Assessment Following the RBA Review," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(3), pages 273-287, September.

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    More about this item

    Keywords

    optimal monetary policy; unemployment; output gap; inflation;
    All these keywords.

    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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