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Debt, Credit and Monetary Targeting in Australia

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  • JOCELYN HORNE
  • MEHDI MONADJEMI

Abstract

The purpose of this paper is to examine the case for debt targeting in Australia. This issue has recently attracted considerable policy interest, especially in the US, in view of the acceleration and diffusion of new financial products and processes which have tended to undermine the existing monetary aggregates. A series for broad credit (defined as outstanding indebtedness of all non‐financial sectors) is constructed and its behaviour and that of its components is discussed and analyzed. A variety of empirical techniques based upon the predictability criterion are employed to show that, unlike the US, no case can be made to support the use of broad credit as an intermediate target in Australia. Bank credit and M3 are found to perform reasonably well as intermediate targets.

Suggested Citation

  • Jocelyn Horne & Mehdi Monadjemi, 1985. "Debt, Credit and Monetary Targeting in Australia," The Economic Record, The Economic Society of Australia, vol. 61(2), pages 522-534, June.
    • Handle: RePEc:bla:ecorec:v:61:y:1985:i:2:p:522-534
    DOI: 10.1111/j.1475-4932.1985.tb02007.x
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    References listed on IDEAS

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    1. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
    2. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    3. Benjamin M. Friedman, 1982. "Monetary Policy with a Credit Aggregate Target," NBER Working Papers 0980, National Bureau of Economic Research, Inc.
    4. William A. Barnett, 2000. "The Optimal Level of Monetary Aggregation," Contributions to Economic Analysis, in: The Theory of Monetary Aggregation, pages 125-149, Emerald Group Publishing Limited.
    5. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(2), pages 197-216.
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    7. Judd, John P & Scadding, John L, 1982. "The Search for a Stable Money Demand Function: A Survey of the Post-1973 Literature," Journal of Economic Literature, American Economic Association, vol. 20(3), pages 993-1023, September.
    8. John P. Judd & John L. Scadding, 1982. "The search for a stable money demand function: a survey of the post- 1973 literature," Working Papers in Applied Economic Theory 109, Federal Reserve Bank of San Francisco.
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    Cited by:

    1. Kevin Davis, 1985. "Monetary Targeting," Australian Journal of Management, Australian School of Business, vol. 10(2), pages 127-135, December.

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