Asymmetric monetary policy in Australia

Shawn Chen-Yu Leu, Jeffrey Sheen

Research output: Chapter in Book/Report/Conference proceedingConference proceeding contributionpeer-review

Abstract

We find evidence for asymmetric behaviour in the monetary policy of the Reserve Bank of Australia. From 1984 to 1990, it acted with considerable discretion leading to a relatively poor performance of an interest rate rule. However it behaved asymmetrically with regard 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 from 1991 to 2002, it responded asymmetrically only to the output gap, switching to respond more acutely in downturns. While its asymmetric behaviour could result from asymmetric preferences or a non-linear aggregate supply relation, our results support the former explanation.
Original languageEnglish
Title of host publicationProceedings of the Australian Conference of Economists, 2005
EditorsJeff Borland
PublisherEconomic Society of Australia
Pages1-31
Number of pages32
ISBN (Print)0734026080
Publication statusPublished - 2005
Externally publishedYes
EventAustralian Conference of Economists (34th : 2005) - Melbourne
Duration: 26 Sep 200528 Sep 2005

Conference

ConferenceAustralian Conference of Economists (34th : 2005)
CityMelbourne
Period26/09/0528/09/05

Keywords

  • interest rate rules
  • asymmetric preferences
  • non-linear Phillips curve
  • generalized method of moments
  • inflation targeting
  • credibility

Fingerprint Dive into the research topics of 'Asymmetric monetary policy in Australia'. Together they form a unique fingerprint.

Cite this