Asymmetric Monetary Policy in Australia*

We find evidence for asymmetric behaviour in Australian monetary policy. During 1984–1990, the Reserve Bank of Australia acted with considerable discretion yielding poor performance of an interest rate rule. However, it behaved asymmetrically to inflation and the output gap in downturns and upturns. On embracing inflation targeting from 1991, it enhanced its credibility by anchoring inflation expectations. Not only did its actions become more predictable in 1991–2002, it responded asymmetrically only to output, switching to act more acutely in downturns. Although its asymmetric behaviour could result from asymmetric preferences or non‐linear aggregate supply, our results support the former explanation.     

The Differential-Productivity Hypothesis and Purchasing-Power Parties: Some New Evidence*

The structure of prices of goods entering into international trade relative to those that do not plays a key role in the Balassa-Samuelson explanation of why countries ‘exchange rates differ systematically from their currencies’ purchasing power. the B-S analysis leads to the proposition that the tradable-nontradable price difference is lower for rich countries than for poor. This paper examines the gap, using prices collected by the International Comparison Programme. A variety of regressions were run to see if indeed the difference between tradable and nontradable price parities moved with income in the way B-S expected. They did.     

Covered Interest Parity and Speculative Efficiency: Some Empirical Evidence for Australia*

Two key relationships which feature prominently through out modern international monetary theory are: (i) covered interest parity and(ii) speculative efficiency of the foreign exchange market, i.e., the unbiasedness of the forward rate as a predictor of the spot rate. This paper presents some empirical evidence for these two hypotheses using Australian data over the period September 1974 to December 1981 during which the Australian dollar was essentially floating. Both quarterly and overlapping monthly data are used. The results obtained generally provide some support for the two hypotheses.     

Debt,Credit and Monetary Targeting in Australia*

The purpose of this paper is to examine the case for debt targeting in Australia. This issue has recently attracted considerable policy interest, especially in the US, in view of the acceleration and diffusion of new financial products and processes which have tended to undermine the existing monetary aggregates. A series for broad credit (defined as outstanding indebtedness of all non-financial sectors) is constructed and its behaviour and that of its components is discussed and analyzed. A variety of empirical techniques based upon the predictability criterion are employed to show that, unlike the US, no case can be made to support the use of broad credit as an intermediate target in Australia. Bank credit and M3 are found to perform reasonably well as intermediate targets.     

Employee Training in Australia: Evidence from AWIRS*

We use linked data for 13 991 employees and 1494 workplaces to analyse the incidence of employer‐provided training in Australia. We find potential experience, current job tenure, low education levels, skilled vocational training and part‐time or fixed‐term employment status are all associated with a lower probability of recent training. In contrast to studies for other countries, we find no evidence of discrimination on the basis of demographic characteristics in the provision of this job‐related training. Finally, and in support of recent non‐competitive training models, higher levels of wage compression are found to be positively related to a greater incidence of employee training.     

Unionization in Australia: Evidence from the AWIRS*

This article uses workplace level data from the recent Australian Workplace Industrial Relations Survey to test a simple demand and supply model explaining the level of union membership within Australia The findings suggest that previous research using individual-level data has understated the importance of the supply-side in influencing union membership. In particular, unionization levels were found to be highly sensitive to firm size, to the number of unions represented in the workplace and to management attitudes     

Monetary Targeting: The International Experience*

This paper examines the experience of nine industrial countries with monetary targeting. The paper suggests that monetary targets were adopted as a tactical response to a particular economic situation, not as monetary rules. Other objectives were given precedence over targets when thought desirable. Most countries changed the targeted aggregate, and two dropped targets altogether. While inflation fell in most countries, the extent to which this was due to the pursuit of monetary targets is unclear. The place of monetary aggregates in many countries now appears to be as one among a number of indicators considered by the authorities in the setting of monetary policy.     

The Role of Monetary Policy in the New Keynesian Model: Evidence from Vietnam

This paper re-designs the New Keynesian model developed by Ireland (2004 Ireland, P. N. (2004). Technology shocks in the New Keynesian model. The Review of Economics and Statistics, 86(4), 923–936. doi: 10.1162/0034653043125158[Crossref], [Web of Science ®] , [Google Scholar]) and then uses the Vietnamese data from January 1995 to December 2012 to estimate the model's parameters. The empirical results show that the State Bank of Vietnam had been more aggressive as well as more responsive to aggregate fluctuations in the period before August 2000 than in the latter period. Thus, this change in the policy stance could be a potential reason for the declining importance of monetary policy in generating movements in output growth, inflation, interest rate, and the output gap across the subsamples. Another notable finding is the dominant role of the cost-push shock in explaining fluctuations in inflation, interest rate, and the output gap, leading to a policy implication that more attention should be devoted to developing substitute and complement industries so as to mitigate negative effects of the cost-push shocks by reducing the degree of dependence on imports.     

Interest Rates and Monetary Velocity in Australia and the United States*

Two problems have become evident in recent work on the demand for money. One is the implausibly long lags in the demand for money function, the other is a tendency for short-run instability during the 1970s. This paper argues that these problems stem from a point raised by Milton Friedman in 1959 but neglected subsequently: namely, the failure of reference cycles in interest rates to conform in timing with cycles in velocity. The cyclical association between interest rates and velocity is examined for both Australia and the US using cross-spectral methods, and evidence is found of the timing relationships which puzzled Friedman and led him to doubt that interest rates significantly affected the demand for money. After considering the implications of these findings, it is concluded that many models of the demand for money appear to be mis-specified, and the two problems mentioned above are symptomatic of this. A different approach to modelling the demand for money is outlined, in which a short-lead relationship in the money market is substituted for the long lags found by other researchers.     

The Stability of the Demand for Money in Monetary Unions: Some Empirical Evidence from WAEMU

Previous studies of the stability of the demand for money have been largely conducted in the context of individual countries. To the extent that these countries have control over their monetary policies, such an approach is well justified. However, for monetary unions, where the control over monetary policy is usually vested in a central or outside authority, it is more appropriate to examine the stability of the money demand for the union as a collective entity. This paper follows this approach with respect to a West African monetary union, the WAEMU, whose monetary policies are largely dictated by the French authorities. Using cointegration theory and CUSUM stability tests, we find evidence that the demand for broad money is stable in this union. Given the empirical results, the paper draws inferences regarding their implications for the formulation of optimal monetary policy for the WAEMU.     

Stated Preferences, Real Behaviour and Anchoring: Some Empirical Evidence

We compare different contingent valuation question formats with each other and with observed behaviour for a non-monetary estimation task, the expected number of kilometers travelled by automobile. Open-ended questions, open-ended follow-up questions, dichotomous choice (DC) questions, and double-bound DC questions are included. The single and double-bound DC questions result in an estimated mean about twice as high as the actual value and the open-ended mean. The DC question overestimation seems to be due to an anchoring effect leading to yea-saying behaviour. Our results about the difference between DC questions and open-ended questions is consistent with the pattern observed in contingent valuations studies of the willingness to pay. Our results indicates that DC questions seem to be associated with a general overestimation problem that is present even for simple non-monetary estimation tasks.     

Monetary Policy in Australia: An Introduction

This Policy Forum brings together three views on the conduct of monetary policy in Australia. It arose from a submission by Peter Stemp which was refereed in the normal manner for contributed papers. One referee, Stephen Grenville, was prompted to forego his anonymity and to submit a paper addressing similar issues but taking a very different approach on the objectives of monetary policy. The editors asked John Pitchford to comment on both papers. The Grenville and Pitchford papers were edited in the manner used for Policy Forum.     

Inflation in the USA,UK and Australia:Some Comparisons*

USA, UK and Australian wage inflation experiences during the post-World-War-II period are examined principally within the framework of the long-run Phillips curve model. Attention is drawn to the sensitivity of wage rate changes to retail price level changes and to the possibility of a temporal change in this relationship. The analyses of these countries are compared so as to highlight similarities and differences.