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- Title
Monetary Rules: A Preliminary Analysis.
- Authors
Jonson, P.D.; Trevor, R.G.
- Abstract
This paper examines the effects of three simple rules for monetary policy in an econometric model of the Australian economy. Its main contribution is to examine such rules under a range of exogenous shocks to the economy, rather than over a particular historical episode. A second contribution is to show that, in the model used, the money supply may' be controlled by variations in interest rates under official control. However, lags of two to four quarters are involved for the shocks considered in the paper. The results are consistent, tn the short run, with those obtained by Poole--that is, it is sensible to fix the money supply when the shocks are 'real' and to fix the interest rate when the shocks are 'financial'. In the medium to long run, however, it is shown that the variability of inflation and unemployment may be less when money is controlled even for a financial shock. These conclusions are strengthened if allowance is made for the 'underwriting' problem.
- Subjects
AUSTRALIA; MONETARY policy; AUSTRALIAN economy
- Publication
Economic Record, 1981, Vol 57, Issue 157, p150
- ISSN
0013-0249
- Publication type
Article
- DOI
10.1111/j.1475-4932.1981.tb01047.x