Monetary Rules: A Preliminary Analysis

P. D. JONSON*, R. G. TREVOR

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

18 Citations (Scopus)

Abstract

This paper examines the effects of three simple rules for monetary policy in an econometric model of the Australian economy. Its main contribution is to examine such rules under a range of exogenous shocks to the economy. rather than over a particular historical episode. A second contribution is to show that, in the model used, the money supply may be controlled by variations in interest rates under official control. However. lags of two to four quarters are involved for the shocks considered in the paper. The results are consistent, in the short run, with those obtained by Poole—that is, it is sensible to fix the money supply when the shocks are ‘real’ and to fix the interest rate when the shocks are ‘financial’. In the medium to long run. however, it is shown that the variability of inflation and unemployment may be less when money is controlled even for a financial shock. These conclusions are strengthened if allowance is made for the ‘underwriting’ problem.

Original languageEnglish
Pages (from-to)150-167
Number of pages18
JournalEconomic Record
Volume57
Issue number2
DOIs
Publication statusPublished - 1981
Externally publishedYes

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