Asymmetric monetary policy in Australia

Shawn Chen Yu Leu, Jeffrey Sheen*

*Corresponding author for this work

Research output: Contribution to journalArticle

9 Citations (Scopus)

Abstract

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. Although its asymmetric behaviour could result from asymmetric preferences or non-linear aggregate supply, our results support the former explanation.

Original languageEnglish
Pages (from-to)S85-S96
Number of pages12
JournalEconomic Record
Volume82
Issue numberS1
DOIs
Publication statusPublished - Sep 2006
Externally publishedYes

Keywords

  • E52
  • E58

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