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A New Keynesian Perspective of Monetary Policy in Australia

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  • Shawn Chen-Yu Leu

    (School of Economics, La Trobe University)

Abstract

We estimate a SVAR for the Australian economy based on an open economy New Keynesian model. Deep structural parameters are identified by placing exclusion restrictions on the VAR residuals and the covariance matrix. Parameter estimates suggest that the New Keynesian specification fits Australian data well. Dynamic responses show no price and exchange rate puzzles and indicate that the Reserve Bank of Australia (RBA) has a short-run focus on stabilizing output fluctuations while maintaining a medium-run inflation target since 1984. The RBA responds decisively to aggregate demand and exchange rate shocks while passively allowing the economy to self-correct aggregate supply shock.

Suggested Citation

  • Shawn Chen-Yu Leu, 2006. "A New Keynesian Perspective of Monetary Policy in Australia," Working Papers 2006.01, School of Economics, La Trobe University.
    • Handle: RePEc:trb:wpaper:2006.01
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    More about this item

    Keywords

    SVAR; New Keynesian; Monetary policy; Rational expectations; Empirical puzzles;
    All these keywords.

    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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