Monetary policy in Australia

Milligan, Jonathan. (2000). Monetary policy in Australia Honours Thesis, School of Economics, The University of Queensland.

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Author Milligan, Jonathan.
Thesis Title Monetary policy in Australia
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2000
Thesis type Honours Thesis
Total pages 108
Language eng
Subjects 14 Economics
Formatted abstract
The nature of the relationships between money, interest rates and output is examined for the case of Australia. The analysis presented is both theoretical and empirical. The theoretical discussion focuses on the IS-LM and AD-AS framework in the context of a small open economy, analogous to Australia. Comparative statics show that the conclusion of money neutrality under classical conditions is overturned once the Keynesian assumption of sticky prices and. wages is incorporated into the model. Furthermore, the assumption of sticky prices implies asymmetric responses of output and prices to positive and negative monetary shocks. The proposition of neutrality is explored empirically through variance decompositions and Granger-causality tests performed on Vector Error Correction models. The results suggest that monetary aggregates and interest rates contain information about future movements in output. Interest rates are found to be relatively more useful in predicting output movements in the post-1990 period. The finding of non-neutrality in the short-run is also supported by the results of estimating a probit model using information on the yield curve to predict recessions. Finally, the proposition of asymmetries is tested using a two-step OLS procedure similar to Cover (1992). The results suggest that, unlike the United States, the response of output to positive and negative monetary shocks is in fact statistically symmetric.

Document type: Thesis
Collection: UQ Theses (non-RHD) - UQ staff and students only
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Created: Tue, 30 Nov 2010, 10:09:51 EST by Muhammad Noman Ali on behalf of The University of Queensland Library