Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/265782 
Year of Publication: 
2022
Series/Report no.: 
IZA Discussion Papers No. 15561
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Using the Reserve Bank of Australia's MARTIN model we compare actual monetary policy decisions to a counterfactual in which the cash rate is set according to an optimal simple rule. We find that monetary policy played a crucial role in avoiding a potential recession in 2001 and mitigating the downturn in 2008-2009. By contrast we find that the cash rate was too high during 2016-2019, keeping inflation below the Reserve Bank's target band. Optimal monetary policy in 2016-2019 would have involved a substantially lower cash rate and would have produced significantly better employment outcomes.
Subjects: 
optimal monetary policy
unemployment
output gap
inflation
JEL: 
E47
E52
E58
Document Type: 
Working Paper

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