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Asymmetric Monetary Policy in Australia

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  • SHAWN CHEN‐YU LEU
  • JEFFREY SHEEN

Abstract

We find evidence for asymmetric behaviour in Australian monetary policy. During 1984–1990, the Reserve Bank of Australia acted with considerable discretion yielding poor performance of an interest rate rule. However, it behaved asymmetrically 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 in 1991–2002, it responded asymmetrically only to output, switching to act more acutely in downturns. Although its asymmetric behaviour could result from asymmetric preferences or non‐linear aggregate supply, our results support the former explanation.

Suggested Citation

  • Shawn Chen‐Yu Leu & Jeffrey Sheen, 2006. "Asymmetric Monetary Policy in Australia," The Economic Record, The Economic Society of Australia, vol. 82(s1), pages 85-96, September.
    • Handle: RePEc:bla:ecorec:v:82:y:2006:i:s1:p:s85-s96
    DOI: 10.1111/j.1475-4932.2006.00335.x
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    Cited by:

    1. Vašíček, Bořek, 2012. "Is monetary policy in the new EU member states asymmetric?," Economic Systems, Elsevier, vol. 36(2), pages 235-263.
    2. Akhand Akhtar Hossain, 2015. "The Evolution of Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 14611.
    3. Baxa, Jaromír & Horváth, Roman & Vašíček, Bořek, 2014. "How Does Monetary Policy Change? Evidence On Inflation-Targeting Countries," Macroeconomic Dynamics, Cambridge University Press, vol. 18(3), pages 593-630, April.
    4. Leu, Shawn Chen-Yu & Sheen, Jeffrey, 2011. "A small New Keynesian state space model of the Australian economy," Economic Modelling, Elsevier, vol. 28(1-2), pages 672-684, January.
    5. Hoffmann, Andreas, 2009. "Fear of depression - Asymmetric monetary policy with respect to asset markets," MPRA Paper 17522, University Library of Munich, Germany.
    6. Sergi Bruno S. & Hsing Yu, 2010. "Responses of Monetary Policy to Inflation, the Output Gap, and Real Exchange Rates: The Case of Australia, Canada, and New Zealand," Global Economy Journal, De Gruyter, vol. 10(2), pages 1-11, May.
    7. Thanaset Chevapatrakul & Juan Paez-Farrell, 2014. "Monetary Policy Reaction Functions in Small Open Economies: a Quantile Regression Approach," Manchester School, University of Manchester, vol. 82(2), pages 237-256, March.

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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