Monetary policy   Goals of monetary policy   RBA Charter   Role of underlying inflation   Implementing monetary policy   Tightening of MP   Loosening of MP   How other rates change   Pre-emptive decisions   'Open mouth operations' Exchange rate intervention  Monetary policy stance   Expansionary policy  Monetary policy neutrality    Restrictive MP   Transmission mechanisms   MP and economic goals   low inflation Growth/jobs  MP strengths and weaknesses

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 Course notes quick navigation

1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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stance of monetary policy (monetary policy settings)

Students will often confuse the monetary policy stance or settings that are being put into place (e.g. whether monetary policy is expansionary or contractionary)  with the means by which these settings are being put into place (e.g. via a reduction or increase in the target cash rate). Higher interest rates do not necessarily mean a tightening of monetary policy has occurred, and similarly, lower interest rates do not necessarily mean a loosening of monetary policy has occurred.  Competitive market pressures (movements in demand or supply) often cause a change in interest rates without a change in monetary policy settings.

This should have been evident from the previous from the previous page How other interest rates change where a widening in the gap between between the target cash rate and home loan rate provides evidence that there is not a one for one relationship between the cash rate and interest rates more generally.

There are three monetary policy settings that require consideration:

  1. Monetary policy neutrality
  2. Expansionary monetary policy
  3. Restrictive monetary policy

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