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- Title
Can Monetary Policy Work in a Deregulated Capital Market?
- Authors
Davis, K. T.; Lewis, M. K.
- Abstract
This article examines the efficacy of monetary policy with deregulated bank interest rates using a model of the market for bank deposits in a competitive capital market. The authors argue that such an environment control of the money supply has the potential to be both more important and more valuable for the economy than under regulation. The authors note that with or without the help of the Report of the Committee of Inquiry into the Australian Financial System released in November 1981, it is the case that monetary policy in Australia in the 1980s will operate in an environment much different from that which prevailed for most of the post-war period. In this article, the authors refer not only to the extent of worldwide inflation and unemployment, but to the market forces which are bringing about a de facto deregulation of financial markets. Since there can be no presumption that private behavior will remain unchanged in the new environment, responses to monetary policies may be altered, and the basis for current practices destroyed. Accordingly, the authors examine in what way the efficacy of monetary instruments is changed and whether a deregulated financial system makes the present aims of monetary policy easier or more difficult to achieve.
- Subjects
AUSTRALIA; MONETARY policy; DEREGULATION; FINANCIAL institutions; BANKING industry; INTEREST rates; MONEY supply
- Publication
Australian Economic Review, 1982, Vol 15, Issue 1, p9
- ISSN
0004-9018
- Publication type
Article
- DOI
10.1111/j.1467-8462.1982.tb00436.x