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Understanding the deviation of Australian policy rate from the Taylor rule

journal contribution
posted on 2023-05-19, 08:27 authored by Hudson, KB, Joaquin VespignaniJoaquin Vespignani
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.

History

Publication title

Applied Economics

Volume

50

Issue

9

Pagination

973-989

ISSN

0003-6846

Department/School

TSBE

Publisher

Routledge Taylor & Francis Ltd

Place of publication

4 Park Square, Milton Park, Abingdon, England, Oxfordshire, Ox14 4Rn

Rights statement

Copyright 2017 Informa UK Limited

Repository Status

  • Restricted

Socio-economic Objectives

Macroeconomics not elsewhere classified

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