Assessing Australian Monetary Policy in the Twenty-First Century

Isaac Gross () and Andrew Leigh
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Isaac Gross: Monash University

No 15561, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Using the Reserve Bank of Australia's MARTIN model we compare actual monetary policy decisions to 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 2008-2009. By contrast we find that the cash rate was too high during 2016-2019, keeping inflation below the Reserve Bank's target band. Optimal monetary policy in 2016-2019 would have involved a substantially lower cash rate and would have produced significantly better employment outcomes.

Keywords: unemployment; optimal monetary policy; output gap; inflation (search for similar items in EconPapers)
JEL-codes: E47 E52 E58 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2022-09
New Economics Papers: this item is included in nep-ban and nep-mon
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Citations: View citations in EconPapers (2)

Published - published in: Economic Record, 2022, 98 (322), 271 - 295

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Journal Article: Assessing Australian Monetary Policy in the Twenty‐First Century (2022)
Working Paper: Assessing Australian Monetary Policy in the Twenty-First Century (2022)
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