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Asymmetric Monetary Policy in Australia

  • Shawn Chen-Yu Leu


    (School of Economics, La Trobe University)

  • Jeffrey Sheen


    (School of Economics and Political Science University of Sydney)

We find evidence for asymmetric behaviour in Australian monetary policy. During 1984-1990, the Reserve Bank of Australia acted with considerable discretion yielding poor performance of an interest rate rule. However it behaved asymmetrically to inflation and the output gap in downturns and upturns. On embracing inflation targeting from 1991, it enhanced its credibility by anchoring inflation expectations. Not only did its actions become more predictable in 1991-2002, it responded asymmetrically only to output, switching to act more acutely in downturns. While its asymmetric behaviour could result from asymmetric preferences or non-linear aggregate supply, our results support the former explanation.

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Paper provided by School of Economics, La Trobe University in its series Working Papers with number 2005.02.

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Length: 32 pages
Date of creation: Oct 2005
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Handle: RePEc:trb:wpaper:2005.02
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