Central Bank Operating Procedures: How the RBA Achieves Its Target for the Cash Rate

Otto, Glenn

doi:10.1111/j.1467-8462.2007.00463.x

Cited by 6 publications

(6 citation statements)

References 6 publications

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“…These data include five variables relevant to the relationship between the central bank and commercial banks as it pertains to the operations of monetary policy within the FCGE model: Consistent with the channel system operated by the Australian central bank (e.g. Otto, 2007), we begin with the idea that both R (CenB,DepLoan,ComB) and R (ComB,DepLoan,CenB) are policy variables. We assume that the central bank maintains a given supply of commercial bank exchange settlement balances (A (CenB,DepLoan,ComB) ) at the rate R (CenB, DepLoan,ComB) via open market operations in the domestic government bond market (i.e.…”

Section: (Iv) the Central Bank Policy Rate And The Taylor Rulementioning

confidence: 99%

The Economy‐wide Impacts of a Rise in the Capital Adequacy Ratios of Australian Banks

2017

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Regulators are requiring banks to raise additional equity to finance their activities. The benefits are understood in terms of reducing the risks of another financial crisis. But there are potential costs, including the potential for unanticipated macroeconomic impacts as banks reduce leverage. We use a financial computable general equilibrium model, containing disaggregated treatment of financial agents, to explore the economy‐wide consequences of an increase in bank capital adequacy ratios. We find that the macroeconomic consequences are small.

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Section: (Iv) the Central Bank Policy Rate And The Taylor Rulementioning

confidence: 99%

The Economy‐wide Impacts of a Rise in the Capital Adequacy Ratios of Australian Banks

2017

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“…These data include two instruments relevant to the relationship between the central bank and commercial banks as it pertains to the operations of monetary policy within the FCGE model, namely: Consistent with the channel system operated by the Australian central bank (e.g. Otto (2007), Woodford (2001)) and applied in Giesecke et al (2016), we begin with the idea that both R (CenB,DeposLoans,Com) and R (Com,DeposLoans,CenB) are policy variables, with R (ComB,DeposLoans,CenB) = R (CenB,DeposLoans,ComB) + 0.005. 4 We assume that the central bank maintains a given supply of commercial bank exchange settlement balances (A (CenB,DeposLoans,ComB) ) at the rate R (CenB,DeposLoans,ComB) via open market operations in the domestic government bond market (F (Govt,Bonds,CenB) ).…”

Section: The Central Bank Policy Rate and The Taylor Rulementioning

confidence: 99%

Comparing the Impacts of Financial Regulation in Australia and the United States via Simulation with Country-Specific Financial CGE Models

et al. 2016

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Beginning with Johansen (1960), computable general equilibrium (CGE) models have been widely applied to study the impact of a variety of economic issues of interest to policy makers. These include changes in taxes and tariffs, changes in labour force demographics and skill levels, the impact of epidemics and terrorist attacks, the impact of drought and water policy reform, and the economic costs of climate change mitigation (Dixon and Parmenter (1996); Dixon and Rimmer (2002); Adams (2007); Giesecke et al. (2015); Wittwer and Dixon (2015)). Despite the efficacy of CGE models as tools in policy analysis, key linkages between the real and financial economies are often treated implicitly; for example, the current account deficit is assumed to be financed in full by a foreign agent, e.g., via a small country assumption. In an explicit sense we may ask how the foreign investor chooses to finance a deficit, e.g., do they prefer to purchase domestic agent bonds, equity or a combination of the two instruments? What are the associated implications for relative rates-ofreturn across the suite of domestic financial instruments, and how do changes in relative returns affect domestic agent investment decisions, nominal exchange rates, and the real economy? This paper seeks to address such questions via the development of a theory of the financial sector for a traditional dynamic CGE model of the U.S. (USAGE 2.0). We begin with a brief synopsis of the construction of a financial database for the United States (U.S.), which documents the stocks and transactional flows of 5 financial instruments across 11 distinct agents. The financial database derived herein and the approach documented in Dixon et al. (2015), are then used to develop a new financial CGE model of the U.S. called USAGE2F. Explicit recognition of financial stocks and flows broadens the scope of CGE analyses to include the effects of changes in capital adequacy requirements of key financial agents, e.g., the commercial banks, as we illustrate with an example. The results are subsequently compared to findings of a similar policy scenario in Australia, which are outlined in Giesecke et al. (2016). This analysis serves to illustrate how the impacts of regulatory change (in this case, a rise in capital adequacy ratios) can be affected by jurisdiction-specific differences in the structure of the financial sector.

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“…When the RBA announces a new target it adjusts its ES rate ( –25 C ) and its end‐of‐day penalty rate ( +25 C ). In other words, the 50‐bp band (or channel as termed by Woodford (2001) and adopted by Otto (2007)) moves pari passu with the demand function. To explore this co‐relationship we need to present a more involved framework.…”

Section: The Mechanics Of Monetary Policymentioning

confidence: 99%

“…12 12 Woodford (2001) and Otto (2007) truncate their demand function at +25 C 1 (as depicted in Figure 4), not at Cd . …”

mentioning

confidence: 99%

Lifting the Cloud of Confusion over Monetary Policy*

Coombes

Reimers

2009

J of App Econs and Policy

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Central Bank Operating Procedures: How the RBA Achieves Its Target for the Cash Rate

Cited by 6 publications

References 6 publications

The Economy‐wide Impacts of a Rise in the Capital Adequacy Ratios of Australian Banks

The Economy‐wide Impacts of a Rise in the Capital Adequacy Ratios of Australian Banks

Comparing the Impacts of Financial Regulation in Australia and the United States via Simulation with Country-Specific Financial CGE Models

Lifting the Cloud of Confusion over Monetary Policy*

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