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Is the RBA Economic Logic Faulty?

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  • Eduardo Pol

Abstract

Over the last quinquennium, low wage growth has been a distinguishing feature of the Australian economy preventing the Reserve Bank of Australia (RBA) to achieve its inflation target. Notwithstanding the current record low cash rate, wage growth remains low. This paper casts doubts about the economic logic of the RBA in relation to the behaviour of wages. We argue that an unlimited supply of labour leads to a vertical Phillips curve in the short‐run, and therefore, significant wage growth cannot be expected to happen irrespective of how low the cash rate is.

Suggested Citation

  • Eduardo Pol, 2020. "Is the RBA Economic Logic Faulty?," Economic Papers, The Economic Society of Australia, vol. 39(3), pages 259-269, September.
    • Handle: RePEc:bla:econpa:v:39:y:2020:i:3:p:259-269
    DOI: 10.1111/1759-3441.12289
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    References listed on IDEAS

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