Asymmetric monetary policy in Australia

Shawn Chen-Yu Leu; Jeffrey Sheen

Asymmetric monetary policy in Australia

Research output: Chapter in Book/Report/Conference proceeding › Conference proceeding contribution › peer-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 language	English
Title of host publication	Proceedings of the Australian Conference of Economists, 2005
Editors	Jeff Borland
Publisher	Economic Society of Australia
Pages	1-31
Number of pages	32
ISBN (Print)	0734026080
Publication status	Published - 2005
Externally published	Yes
Event	Australian Conference of Economists (34th : 2005) - Melbourne Duration: 26 Sept 2005 → 28 Sept 2005

Conference

Conference	Australian Conference of Economists (34th : 2005)
City	Melbourne
Period	26/09/05 → 28/09/05

Keywords

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

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https://editorialexpress.com/conference/ACE2005/program/ACE2005.html

Cite this

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title = "Asymmetric monetary policy in Australia",

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.",

keywords = "interest rate rules, asymmetric preferences, non-linear Phillips curve, generalized method of moments, inflation targeting, credibility",

author = "Leu, \{Shawn Chen-Yu\} and Jeffrey Sheen",

year = "2005",

language = "English",

isbn = "0734026080",

pages = "1--31",

editor = "Jeff Borland",

booktitle = "Proceedings of the Australian Conference of Economists, 2005",

publisher = "Economic Society of Australia",

note = "Australian Conference of Economists (34th : 2005) ; Conference date: 26-09-2005 Through 28-09-2005",

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AU - Leu, Shawn Chen-Yu

AU - Sheen, Jeffrey

PY - 2005

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N2 - 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.

AB - 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.

KW - interest rate rules

KW - asymmetric preferences

KW - non-linear Phillips curve

KW - generalized method of moments

KW - inflation targeting

KW - credibility

M3 - Conference proceeding contribution

SN - 0734026080

SP - 1

EP - 31

BT - Proceedings of the Australian Conference of Economists, 2005

A2 - Borland, Jeff

PB - Economic Society of Australia

T2 - Australian Conference of Economists (34th : 2005)

Y2 - 26 September 2005 through 28 September 2005

ER -

Asymmetric monetary policy in Australia

Abstract

Conference

Keywords

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