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Issues in Modelling Monetary Policy

Author

Listed:
  • Malcolm Edey

    (Reserve Bank of Australia)

  • John Romalis

    (Reserve Bank of Australia)

Abstract

This paper reviews issues in the econometric modelling of monetary policy in the light of recent experience and research. Two main sets of issues are covered: first, the operation of policy including the specification of the instrument and objectives; and second, the transmission of monetary policy effects to the wider economy. There is also a discussion of the inherent limitations on the ability to quantify the role of monetary policy in econometric models.

Suggested Citation

  • Malcolm Edey & John Romalis, 1996. "Issues in Modelling Monetary Policy," RBA Research Discussion Papers rdp9604, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp9604
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    File URL: http://www.rba.gov.au/publications/rdp/1996/pdf/rdp9604.pdf
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    References listed on IDEAS

    as
    1. Guy Debelle & Glenn Stevens, 1995. "Monetary Policy Goals for Inflation in Australia," RBA Research Discussion Papers rdp9503, Reserve Bank of Australia.
    2. Adrian Orr & Malcolm Edey & Michael Kennedy, 1995. "The Determinants of Real Long-Term Interest Rates: 17 Country Pooled-Time-Series Evidence," OECD Economics Department Working Papers 155, OECD Publishing.
    3. Philip Lowe, 1992. "The Term Structure of Interest Rates, Real Activity and Inflation," RBA Research Discussion Papers rdp9204, Reserve Bank of Australia.
    4. Fuhrer, Jeffrey C & Moore, George R, 1995. "Monetary Policy Trade-offs and the Correlation between Nominal Interest Rates and Real Output," American Economic Review, American Economic Association, vol. 85(1), pages 219-239, March.
    5. 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.
    6. Malcolm L. Edey, 1990. "Operating Objectives for Monetary Policy," RBA Research Discussion Papers rdp9007, Reserve Bank of Australia.
    7. I.J. Macfarlane, 1988. "International Interest Rate Linkages and Monetary Policy: The Case of Australia," RBA Research Discussion Papers rdp8812, Reserve Bank of Australia.
    8. de Brouwer, Gordon & Ericsson, Neil R, 1998. "Modeling Inflation in Australia," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 433-449, October.
    9. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    10. McCallum, Bennett T., 1986. "Some issues concerning interest rate pegging, price level determinacy, and the real bills doctrine," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 135-160, January.
    11. Gruen, David W R & Wilkinson, Jenny, 1994. "Australia's Real Exchange Rate--Is It Explained by the Terms of Trade or by Real Interest Differentials?," The Economic Record, The Economic Society of Australia, vol. 70(209), pages 204-219, June.
    12. Stephen Grenville, 1996. "Recent Developments in Monetary Policy: Australia and Abroad," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 29(1), pages 29-39.
    13. David W.R. Gruen & Marianne C. Gizycki, 1993. "Explaining Forward Discount Bias: Is it Anchoring?," RBA Research Discussion Papers rdp9307, Reserve Bank of Australia.
    14. David Gruen & Tro Kortian, 1996. "Why Does the Australian Dollar Move so Closely with the Terms of Trade?," RBA Research Discussion Papers rdp9601, Reserve Bank of Australia.
    15. David Gruen, 1995. "Financial Market Volatility and the World-wide Fall in Inflation," RBA Research Discussion Papers rdp9513, Reserve Bank of Australia.
    16. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    17. John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 11-26, Fall.
    18. David Gruen & Geoffrey Shuetrim, 1994. "Internationalisation and the Macroeconomy," RBA Annual Conference Volume,in: Philip Lowe & Jacqueline Dwyer (ed.), International Intergration of the Australian Economy Reserve Bank of Australia.
    19. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
    20. Geoffrey Shuetrim & Philip Lowe & Steve Morling, 1993. "The Determinants of Corporate Leverage: A Panel Data Analysis," RBA Research Discussion Papers rdp9313, Reserve Bank of Australia.
    21. Gruen, David W R & Menzies, Gordon D, 1995. "Forward Discount Bias: Is It Near-Rationality in the Foreign Exchange Market?," The Economic Record, The Economic Society of Australia, vol. 71(213), pages 157-166, June.
    22. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, January.
    23. Benjamin M. Friedman, 1995. "Does Monetary Policy Affect Real Economic Activity?: Why Do We Still Ask This Question?," NBER Working Papers 5212, National Bureau of Economic Research, Inc.
    24. Philip Lowe, 1995. "The Link between the Cash Rate and Market Interest Rates," RBA Research Discussion Papers rdp9504, Reserve Bank of Australia.
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    Citations

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    Cited by:

    1. Katherine Avram, 1998. "Implications Of New Payments Technology For Monetary Policy," Economic Papers, The Economic Society of Australia, vol. 17(4), pages 54-68, December.
    2. Alison Tarditi, 1996. "Modelling the Australian Exchange Rate, Long Bond Yield and Inflationary Expectations," RBA Research Discussion Papers rdp9608, Reserve Bank of Australia.
    3. West, L.k. & Agbola, W.F., 2005. "Causality Links Between Asset Prices And Cash Rate In Australia," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 2(3), pages 69-86.

    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O56 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Oceania

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