The Determinants of RBA Target Rate Decisions: A Choice Modelling Approach

Abstract

This article examines the determinants of Reserve Bank of Australia (RBA) target rate decisions in the period following the introduction of inflation targeting (1993–2012). A choice modelling approach reveals asymmetry in RBA policy such that the RBA is more concerned about inflation rising above the target band, and the threshold for cutting rates is greater than that required to hike rates. While there is evidence of the RBA following mandated objectives, the likelihood of rate reductions has increased following the appointment of Glenn Stevens, although his term as Governor has coincided with extraordinary economic conditions.

The influence of FOMC member characteristics on the monetary policy decision-making process

“…This supports the work of Besley et al (2008), who note homogeneous reactions to inflation forecasts, and output gaps, with regards background characteristics of MPC members, and that inflation forecasts do a good job of predicting member behaviour. Similarly, Smales (2013) suggests that the decision-making behaviour of the Reserve Bank of Australia is related to the inflation-targeting framework within which the Bank operates.…”

Stock Price Reactions to Wire News from the European Central Bank: Evidence from Changes in the Sentiment Tone and International Market Indexes

“…Their empirical results suggest that the institutional constraints associated with the UK monetary policy, rather than the career background and other characteristics of the members, is what influences voting behaviours. Similarly,Smales (2013) suggests that the decision-making behaviour of the Reserve Bank of Australia is related to the inflation-targeting framework within which the bank operates.A separate part of this literature focuses on the strategic and psychological factors affecting the behaviour of monetary policy committee members Rülke and Tillmann (2011). study the extent of herding behaviour in FOMC member forecasts regarding growth, inflation and unemployment and find no evidence of herding behaviour.…”