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Asymmetric Monetary Policy in Australia

Shawn Leu () and Jeffrey Sheen ()

No 2005.02, Working Papers from School of Economics, La Trobe University

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. While its asymmetric behaviour could result from asymmetric preferences or non-linear aggregate supply, our results support the former explanation.

Keywords: interest rate rules; asymmetric preferences; non-linear Phillips curve; generalized method of moments; inflation targeting; credibility EDIRC Provider-Institution: RePEc:edi:smlatau (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2005-10
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Related works:
Journal Article: Asymmetric Monetary Policy in Australia (2006) Downloads
Working Paper: Asymmetric Monetary Policy in Australia (2005) Downloads
Working Paper: Asymmetric Monetary Policy in Australia (2005) Downloads
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