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Financial Deregulation and the Monetary Transmission Mechanism

Author

Listed:
  • Jerome Fahrer

    (Reserve Bank of Australia)

  • Tom Rohling

    (Reserve Bank of Australia)

Abstract

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

Suggested Citation

  • Jerome Fahrer & Tom Rohling, 1990. "Financial Deregulation and the Monetary Transmission Mechanism," RBA Research Discussion Papers rdp9008, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp9008
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    Cited by:

    1. Phil Bodman, "undated". "Are the Effects of Monetary Policy Asymmetric in Australia?," MRG Discussion Paper Series 0406, School of Economics, University of Queensland, Australia.
    2. Carolyn Currie, 2003. "Towards a General Theory of Financial Regulation: Predicting, Measuring and Preventing Financial Crises," Working Paper Series 132, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    3. Currie, Carolyn, 2006. "A new theory of financial regulation: Predicting, measuring and preventing financial crises," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(1), pages 48-71, February.

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