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Understanding the deviation of Australian policy rate from the Taylor rule


Hudson, KB and Vespignani, J, Understanding the deviation of Australian policy rate from the Taylor rule, Applied Economics, 50, (9) pp. 973-989. ISSN 0003-6846 (2017) [Refereed Article]

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Copyright 2017 Informa UK Limited

DOI: doi:10.1080/00036846.2017.1346367


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 Details

Item Type:Refereed Article
Keywords:Taylor rule, monetary policy, small open economy
Research Division:Economics
Research Group:Applied economics
Research Field:Macroeconomics (incl. monetary and fiscal theory)
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Macroeconomics not elsewhere classified
UTAS Author:Vespignani, J (Associate Professor Joaquin Vespignani)
ID Code:119178
Year Published:2017
Deposited By:TSBE
Deposited On:2017-07-27
Last Modified:2018-05-24

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