The Regional Appropriateness of Monetary Policy: An Application of Taylor’s Rule to Australian States and Territories
In recent years Taylor’s rule has become a widely used tool for assessing the stance of monetary policy. Not only has it been used to evaluate the U.S. Federal Reserve’s monetary policy, but also, for example, to evaluate the appropriateness of the European Central Bank’s monetary policy for each individual member nation of the European Monetary Union. This paper builds on this work and uses Taylor’s rule to evaluate the degree of appropriateness of Australia’s national monetary policy to each of Australia’s states and territories. National monetary policy is represented by the overnight cash rate and this is compared to a notional cash rate calculated for each individual state and territory. The aim is to illustrate the extent to which national monetary policy historically may have deviated from what might have been most appropriate for the economic conditions of each state and territory. To this end, three different recent monetary policy episodes are analysed from a regional perspective. Moreover, an analysis of the disparities between the Australian states’ and territories’ notional cash rates with the actual national cash rate suggests – perhaps not too surprisingly - that the Reserve Bank of Australia implicitly sets national cash rates in close accordance with the economic conditions of Australia’s two most populous states.
|Date of creation:||20 Aug 2002|
|Date of revision:|
|Contact details of provider:|| Postal: GPO Box 2434, BRISBANE QLD 4001|
Web page: http://www.bus.qut.edu.au/faculty/economics/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Taylor, John B., 1998.
"The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank,"
649, Stockholm University, Institute for International Economic Studies.
- Taylor, John B., 1999. "The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 655-679, June.
- Guy Debelle, 1999. "Inflation Targeting and Output Stabilisation," RBA Research Discussion Papers rdp1999-08, Reserve Bank of Australia.
- Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
- Guy Debelle & Stanley Fischer, 1994.
"How independent should a central bank be?,"
Working Papers in Applied Economic Theory
94-05, Federal Reserve Bank of San Francisco.
- Nils Björksten & Miika Syrjänen, 2000. "How Problematic are Internal Euro Area Differences?," EUI-RSCAS Working Papers 14, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
- Gert Schnabel & Stefan Gerlach, 1999. "The Taylor rule and interest rates in the EMU area: a note," BIS Working Papers 73, Bank for International Settlements.
- Gerlach, Stefan & Smets, Frank, 1999. "Output gaps and monetary policy in the EMU area1," European Economic Review, Elsevier, vol. 43(4-6), pages 801-812, April.
- Gerlach, Stefan & Schnabel, Gert, 1999.
"The Taylor Rule and Interest Rates in the EMU Area,"
CEPR Discussion Papers
2271, C.E.P.R. Discussion Papers.
- Gerlach, Stefan & Schnabel, Gert, 2000. "The Taylor rule and interest rates in the EMU area," Economics Letters, Elsevier, vol. 67(2), pages 165-171, May.
- John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, May.
- Taylor, J.B., 1998. "The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by European Central Bank," Papers 649, Stockholm - International Economic Studies.
When requesting a correction, please mention this item's handle: RePEc:qut:dpaper:115. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Angela Fletcher)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.