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Assessing Australian Monetary Policy in the Twenty‐First Century

Author

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  • Isaac Gross
  • Andrew Leigh

Abstract

Using the Reserve Bank of Australia's MARTIN model, we compare actual monetary policy decisions with a counterfactual in which the cash rate is set according to an optimal simple rule. We find that monetary policy played a crucial role in avoiding a potential recession in 2001 and mitigating the downturn in 2008–09. By contrast we find that the cash rate was too high during 2016–19, keeping inflation below the Reserve Bank's target band. Optimal monetary policy in 2016–19 would have involved a substantially lower cash rate and produced significantly better employment outcomes.

Suggested Citation

  • Isaac Gross & Andrew Leigh, 2022. "Assessing Australian Monetary Policy in the Twenty‐First Century," The Economic Record, The Economic Society of Australia, vol. 98(322), pages 271-295, September.
    • Handle: RePEc:bla:ecorec:v:98:y:2022:i:322:p:271-295
    DOI: 10.1111/1475-4932.12689
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    References listed on IDEAS

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    1. Kockerols, Thore & Kok, Christoffer, 2019. "Leaning against the wind: macroprudential policy and the financial cycle," Working Paper Series 2223, European Central Bank.
    2. Alexander Ballantyne & Tom Cusbert & Richard Evans & Rochelle Guttmann & Jonathan Hambur & Adam Hamilton & Elizabeth Kendall & Rachael McCririck & Gabriela Nodari & Daniel M. Rees, 2020. "MARTIN Has Its Place: A Macroeconometric Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 96(314), pages 225-251, September.
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    Cited by:

    1. Ross Garnaut & David Vines, 2023. "Monetary Policy Mistakes and Remedies: An Assessment Following the RBA Review," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(3), pages 273-287, September.
    2. Martin, Chris & Lawson, Julie & Milligan, Vivienne & Hartley, Chris & Pawson, Hal & Dodson, Jago, 2023. "Towards an Australian Housing and Homelessness Strategy: understanding national approaches in contemporary policy," SocArXiv h5tja, Center for Open Science.

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    More about this item

    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • 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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