This paper discusses the determination of a capital charge to cover default risk on a netted derivatives portfolio. Different methods of setting a capital charge are investigated. Their ability to track a more sophisticated measure of credit risk is tested for Australian banks’ portfolios. The...

The paper gives an overview of recent work in the development of the RBII macroeconomic model, focussing on adjustments designed to reflect the post-deregulation financial environment. Changes to the RBII model have been made in two main areas. First, a clearing market for short-term funds has...

This paper investigates simple monetary policy rules using a theoretical model of a small open economy. The anlysis is intended to highlight two problems in policy formulation that are of particular importance to Australia: instability of the money demand function, and exposure of the economy to...

Economic theory offers two distinct approaches to the modelling of interest rates. At the microeconomic level, interest rates are modelled as an outcome of intertemporal optimisation by investors, so that real interest rates are determined entirely by the real variables that characterise risk....

This paper provides a theoretical analysis of monetary policy rules specified in terms of an interest rate instrument, in contrast to the usual assumption that the instrument is a monetary quantity. The analysis is presented using a neoclassical dynamic model. It begins by summarising some...

In this paper policy issues related to the operation of monetary policy in a low inflation environment are discussed. The successful reduction of inflation rates in a number of OECD countries in recent years arguably represents a regime shift that is likely to affect the operation of monetary...

This paper reviews the experience with financial reform in OECD countries. A general overview of the course of deregulation is provided and the economic rationale for financial regulation is discussed. The question of whether financial liberalisation has led to improved welfare is then...