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Understanding the deviation of Australian policy rate from the Taylor rule

Hudson, KB and Vespignani, J ORCID: 0000-0003-0265-4377 2017 , 'Understanding the deviation of Australian policy rate from the Taylor rule' , Applied Economics, vol. 50, no. 9 , pp. 973-989 , doi: 10.1080/00036846.2017.1346367.

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Abstract

This investigation aims to explain and quantify the deviations of the Australian policy rate (set by Reserve Bank of Australia) from the Taylor Rule. A three-step econometric procedure designed to reflect the data-rich environment in which central banks operate is proposed using information for 229 macroeconomic series. This procedure can be applied to data for any economy with inflation targeting monetary rule. Our application with Australian data shows that approximately 65% of Australia’s policy rate deviation from the Taylor Rule can be explained systematically, with international factors and a domestic factor accounting for 41.9% and 22.5%, respectively, of the total variation in deviation from the rule.

Item Type: Article
Authors/Creators:Hudson, KB and Vespignani, J
Keywords: Taylor rule, monetary policy, small open economy
Journal or Publication Title: Applied Economics
Publisher: Routledge Taylor & Francis Ltd
ISSN: 0003-6846
DOI / ID Number: 10.1080/00036846.2017.1346367
Copyright Information:

Copyright 2017 Informa UK Limited

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