Research Discussion Paper – RDP 9212 Changes in the Characteristics of the Australian Business Cycle: Some Lessons for Monetary Policy from the 1980s and Early 1990s


This paper examines the causes of asset price inflation and deflation in the Australian economy, their links with borrowing and recent problems that have arisen for banks' balance sheets. Implications for the business cycle and monetary policy are drawn out in some detail. The difficulties encountered are attributed partly to the once-for-all transition from regulated to deregulated financial markets, and it is argued that it would be wrong to extrapolate recent developments into the future. It is suggested that arguments to make asset price inflation an explicit objective of monetary policy are not helpful. The paper goes to point out some encouraging new trends in Australia's linkages with the rest of the world. Export performance has been greatly enhanced by longer-term reforms and exchange rate depreciation during the 1980s.

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