Assessing Australian monetary policy in the twenty-first century

Isaac Gross, Andrew Leigh

Research output: Contribution to journalArticleResearchpeer-review

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.

Original languageEnglish
Pages (from-to)271-295
Number of pages25
JournalEconomic Record
Volume98
Issue number322
DOIs
Publication statusPublished - Sep 2022

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