No CrossRef data available.
Article contents
The Determination of Interest Rates and the Effectiveness of Monetary Policy in Deregulated Financial Markets
Published online by Cambridge University Press: 01 January 2023
Abstract
This paper examines two issues pertinent to the effective implementation of monetary policy: firstly, the ability of the monetary authorities to control interest rates and secondly, whether interest rates have exhibited a leading, relationship with economic activity since deregulation of the financial markets. If expenditures are unresponsive to changes in interest rates it is shown that the monetary authorities have the ability to determine the interest rate but if the authorities attempt to push interest rates into regions in which expenditures become interest rate elastic, a role for liquidity preference in determination of the interest rate is restored. This limits the effects of discretionary monetary policy to the short-term. Previous empirical studies, graphs and correlation coefficients indicate only limited evidence for a negative association between interest rates and changes in economic activity whereas Granger causality tests indicate that predictable relationships between interest rates and economic activity have existed in Australia for the period in which financial markets have been deregulated.
- Type
- Research Article
- Information
- Copyright
- Copyright © The Author(s) 1993
Footnotes
*
I wish to thank Colin Rogers, John Nevile and an anonymous referee for useful suggestions and comments. All responsibility for errors remains mine.
References
Brennan, Paul, Milavec, Tania
(1988), “The Relationship Between Actual Investment and Survey-Based Expectations”, Reserve Bank of Australia, Research Discussion Paper 8810, December.Google Scholar
Bullock, Michele, Morris, Dirk, Stevens, Glenn
(1988), “The Relationship Between Financial Indicators and Economic Activity: 1968–1987”, Reserve Bank of Australia, Research Discussion Paper 8805, August.Google Scholar
Dow, J.C.R., Saville, I.D.
(1990), A Critique of Monetary Policy: Theory and British Experience, Clarendon Press, Oxford.CrossRefGoogle Scholar
Howells, P.G.A., Bain, K.
(1983), “The Derivation of the LM Schedule — A Pedagogical Note”, British Review of Economic issues, Vol. 5, pp.57–65.Google Scholar
Goodhart, Charles
(1989), “The Conduct of Monetary Policy”, Economic Journal, Vol. 99, pp.293–346.Google Scholar
Keynes, John Maynard
(1921), A Treatise on Probability, Macmillan and Co., Limited, London.Google Scholar
Keynes, John Maynard
(1973), The General Theory of Employment, Interest and Money, The Collected Writings of John Maynard Keynes, Vol. 7.Google Scholar
Macfarlane, Ian and Stevens, Glenn. (1989), “Overview: Monetary Policy and the Economy” in ed.
Macfarlane, Ian, Stevens, Glenn
, Studies in Money and Credit, Proceedings of a Conference, Reserve Bank of Australia, pp. 1–9.Google Scholar
Milbourne, Ross
(1990), “Money and Finance”, in ed.
Grenville, Stephen The Australian Macro-Economy in the 1980s, Proceedings of a Conference, Reserve Bank of Australia, pp.222–276.Google Scholar
Monadjemi, M., Kearney, C.
(1990), “Deregulation and the Conduct of Monetary Policy”, The Economic and Labour Relations Review, December, pp. 18–33.CrossRefGoogle Scholar
Moore, Basil J.
(1988), Horizontalists and Verticalists: The Macroeconomics of Credit Money. Cambridge University Press.Google Scholar
Stevens, Glenn, Thorpe, Susan
(1989), “The Relationship Between Interest Rates and Economic Activity: Some Further Evidence”, Reserve Bank of Australia, Research Discussion Paper 8903, June.Google Scholar
Tease, Warren
(1988), “The Expectations Theory of the Term Structure of Interest Rates in Australia”, Economic Record, Vol. 64, pp. 120–127.CrossRefGoogle Scholar