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The Implementation of Monetary Policy in Australia

Author

Listed:
  • Ric Battellino

    (Reserve Bank of Australia)

  • John Broadbent

    (Reserve Bank of Australia)

  • Philip Lowe

    (Reserve Bank of Australia)

Abstract

In January 1990, the Reserve Bank of Australia (RBA) began announcing and explaining changes in the target cash rate. This has increased public understanding of monetary policy and, by increasing the attention given to changes in interest rates, has affected the way in which changes in policy are transmitted to the economy. In addition, the discipline of having to announce and explain changes in the target cash rate to the public has led to a clearer focus on the objectives of monetary policy within the RBA and improved the accountability of the Bank. It has also led to a substantial decline in the volatility of short-term interest rates and more rapid pass-through of changes in the target cash rate into deposit and lending rates. In Australia, as in many other countries, interest rates have tended to be adjusted in a series of steps in the same direction. In part, this can be explained in terms of the uncertainty that policy-makers face, and the costs involved in frequently reversing the direction of interest-rate changes.

Suggested Citation

  • Ric Battellino & John Broadbent & Philip Lowe, 1997. "The Implementation of Monetary Policy in Australia," RBA Research Discussion Papers rdp9703, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp9703
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    File URL: http://www.rba.gov.au/publications/rdp/1997/pdf/rdp9703.pdf
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    References listed on IDEAS

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    1. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
    2. Bob Rankin, 1992. "The Cash Market in Australia," RBA Research Discussion Papers rdp9214, Reserve Bank of Australia.
    3. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    4. Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
    5. Mankiw, N. Gregory, 1987. "The optimal collection of seigniorage : Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 327-341, September.
    6. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
    7. Barro, Robert J., 1989. "Interest-rate targeting," Journal of Monetary Economics, Elsevier, vol. 23(1), pages 3-30, January.
    8. Philip Lowe & Luci Ellis, 1997. "The Smoothing of Official Interest Rates," RBA Annual Conference Volume,in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
    9. Philip Lowe, 1995. "The Link between the Cash Rate and Market Interest Rates," RBA Research Discussion Papers rdp9504, Reserve Bank of Australia.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Tore Ellingsen & Ulf Soderstrom, 2004. "Why are Long Rates Sensitive to Monetary Policy," Working Papers 256, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    2. Tore Ellingsen & Ulf Soderstrom, 2001. "Monetary Policy and Market Interest Rates," American Economic Review, American Economic Association, vol. 91(5), pages 1594-1607, December.
    3. Rhys R. Mendes & Stephen Murchison & Carolyn A. Wilkins, 2017. "Monetary Policy Under Uncertainty: Practice Versus Theory," Discussion Papers 17-13, Bank of Canada.

    More about this item

    JEL classification:

    • 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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