Responses of Monetary Policy to Inflation, the Output Gap, and Real Exchange Rates: The Case of Australia, Canada, and New Zealand

This study shows that the policy rate reacts positively to the inflation rate, the output gap, and the lagged real effective exchange rate for Australia, Canada, and New Zealand and negatively to the current real effective exchange rate for Australia and Canada. The inflation rate has a greater impact on the policy rate for New Zealand than for Australia and Canada whereas the output gap has a greater effect on the policy rate for Australia and Canada than for New Zealand. Since the adoption of inflation targeting, the intercept of the monetary-policy function has decreased in each of the three countries, and the slope coefficient of the inflation rate has increased for Australia and New Zealand but has decreased for Canada.

Recommended Citation

Sergi, Bruno S. and Hsing, Yu (2010) "Responses of Monetary Policy to Inflation, the Output Gap, and Real Exchange Rates: The Case of Australia, Canada, and New Zealand," Global Economy Journal: Vol. 10 : Iss. 2, Article 5.
DOI: 10.2202/1524-5861.1596
Available at: http://www.bepress.com/gej/vol10/iss2/5