Monetary Policy Reaction Functions in Australia

Gordon de Brouwer, James Gilbert

    Research output: Contribution to journalArticle


    Interest-rate functions are estimated to assess the stability of Australian monetary policy in the post-float period. The results indicate that the Reserve Bank of Australia (RBA) is forward-looking, focusing on outcomes 1 year ahead. The weight on inflation in the RBA reaction function has increased, and that on output has decreased, since inflation targeting. This is robust to various definitions of the output gap. The RBA also appears to take modest account of sustained movements in the effective exchange rate. Point estimates of the implied neutral rate of interest are from 5 to 51/2 per cent.
    Original languageEnglish
    Pages (from-to)124-134
    JournalEconomic Record
    Issue number253
    Publication statusPublished - 2005


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