It has been argued that the effect of a change in the monetary policy interest rate on aggregate demand may be larger at higher levels of indebtedness through its impact on cash flows. However, the extent of credit constraints may be at least as important, if not more so. In particular, monetary...

Historical experience shows that disruptions in credit markets can have a material impact on activity and inflation. However, it is hard to measure such effects owing to the difficulty in isolating credit supply shocks. This paper employs survey data to identify the impact of credit supply...

We use a simple model of a closed economy to study the recommendations of monetary policy-makers attempting to respond optimally to an asset-price bubble whose stochastic properties they understand. We focus on the impact which the zero lower bound (ZLB) on nominal interest rates has on the...

The decline in output volatility in a number of countries over the past few decades has been well-documented, though less agreement has been reached about the causes of this decline. In this paper, we use a panel of data from 20 OECD countries to see if there is a role for various indicators of...

Monetary policy is conducted in an environment of uncertainty. This paper sets up a model where the central bank uses real-time data from the bond market together with standard macroeconomic indicators to estimate the current state of the economy more efficiently, while taking into account that...

The output gap – the difference between actual and potential output – is widely regarded as a useful guide to future inflationary pressures, as well as an important indicator of the state of the economy in its own right. Since the output gap is unobservable, however, its estimation is prone...

Analysts typically use a variety of techniques to forecast inflation. These include both ‘bottom-up’ approaches, for near-term forecasting, as well as econometric methods (such as mark-up models of inflation, which have been found to perform quite well for Australia – see de Brouwer and...

We use a structural vector autoregression (SVAR) to examine the effect of unanticipated changes in monetary policy on the expenditure and production components of GDP over the period from 1983 to 2007. We find that dwelling investment and machinery & equipment investment are the most...

In an open economy inflation-targeting framework, whether policy-makers should target aggregate or non-traded inflation depends on the structural relationships in the economy. This paper shows that in a small empirical model of the Australian economy, it makes little difference which measure is...

Different approaches to modelling the macroeconomy vary in the emphasis they place on coherence with theory relative to their ability to match the data. Dynamic stochastic general equilibrium (DSGE) models place greater emphasis on theory, while vector autoregression (VAR) models tend to provide...