The Taylor rule in Australia, 1989-2014

Elston, Frank and Pensiero, Domenico (2016) The Taylor rule in Australia, 1989-2014. Academy of Taiwan Business Management Review, 12 (1). pp. 12-19. ISSN 1813-0534

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The Taylor rule is a rules based monetary policy whereby the policy maker reacts to inflation and output gaps in setting the policy instrument, usually a short term interest rate. It can be prescriptive or descriptive. This study examines whether the Taylor rule describes the behaviour of the Reserve Bank of Australia since 1989, a period encompassing the last three Governors of the RBA. Using the traditional gap coefficients of .5 we find the implied Taylor cash rate, which then can be compared with the actual cash rate. The Taylor rule describes well the policymaking during the era of Governor Glenn Stevens, but does not describe as well the policymaking during the two predecessors. The study also determines the least squares estimates of the coefficients and finds that both the inflation and output coefficients exceed .5. A supplementary finding is that lagging the output and inflation gaps did not make any material difference.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Faculty/School / Institute/Centre: Current - Faculty of Business, Education, Law and Arts - School of Commerce
Date Deposited: 29 Jun 2016 04:58
Last Modified: 15 Sep 2017 00:05
Uncontrolled Keywords: Taylor rule; monetary policy; inflation gap; output gap
Fields of Research : 14 Economics > 1402 Applied Economics > 140212 Macroeconomics (incl. Monetary and Fiscal Theory)
Socio-Economic Objective: E Expanding Knowledge > 97 Expanding Knowledge > 970114 Expanding Knowledge in Economics

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