The Determination of Interest Rates and the Effectiveness of Monetary Policy in Deregulated Financial Markets

Penny Neal
Additional contact information
Penny Neal: Department of Economics, University of Adelaide

No 1992-03, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: This paper exnmines two issues pertinent to the effective implementation of monetary policy: firstly, the ability of the monetary authorities to control interest rates and secondly, whether interest rates have exhibited a leading relationship with economic activity since deregulation of the financial markets. If expenditures are unresponsive to changes in interest rates it is shown that the monetary authorities have the ability to determine the interest rate but if the authorities attempt to push interest rates into regions in which expenditures become interest rate elastic, a role for liquidity preference in determination of the interest rate is restored. This limits the effects of discretionary monetary policy to the shon-term. Previous empirical studies, graphs and correlation coefficients indicate only limited evidence fOT a negative association between interest rates and changes in economic activity whereas Granger causality tests indicate that predictable relationships between interest rates and economic activity have existed in Australia for the period in wbich financial markets have been deregulated.

Keywords: interest rates; financial policy (search for similar items in EconPapers)
Pages: 33 pages
Date: 1992
References: Add references at CitEc
Citations:

Downloads: (external link)
https://media.adelaide.edu.au/economics/papers/doc/wp1992-03.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:adl:wpaper:1992-03

Access Statistics for this paper

More papers in School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy Contact information at EDIRC.
Bibliographic data for series maintained by Qazi Haque (qazi.haque@adelaide.edu.au).