In this paper we develop a theoretical framework that helps to analyse the role of monetary policy in responding to asset-price bubbles. A large and rapid fall in the nominal price of assets that form the basis of collateral for loans from financial intermediaries can have adverse effects on...

We present a simple model of the macroeconomy that includes a role for an asset-price bubble, and derive optimal monetary policy settings for two policy-makers. The first policy-maker, a sceptic, does not attempt to forecast the future possible paths for the asset-price bubble when setting...

In this paper we use a simple model of the Australian economy to empirically examine the consequences of parameter uncertainty for optimal monetary policy. Optimal policy responses are derived for a monetary authority that targets inflation and output stability. Parameter uncertainty is...

This paper examines optimal monetary policy in an open-economy two-country model with sticky prices. Currency misalignments are shown to be inefficient and lower world welfare. Also, optimal policy must target not only inflation and the output gap, but also the currency misalignment. However,...

Latin American economies are exposed to substantial external vulnerability. Domestic imbalances and terms of trade shocks are often exacerbated by sudden stops of capital inflow. In this paper we explore ways of overcoming external vulnerability, drawing lessons from a detailed comparison of the...

This paper attempts to discern from financial market data the impact of greater monetary policy transparency over the period since the late 1980s. We examine whether interest rate variability has changed, the degree to which financial markets anticipate policy moves and movements in the yield...

This paper examines the factors that drive corporate investment in Australia using a panel of listed companies covering the period from 1990 to 2004. Real sales growth is found to be a significant determinant of corporate investment. The user cost of capital, which incorporates both debt and...

In this paper, we investigate the spillover of the financial-market volatility arising from the East-asian crisis on financial markets in Australia and New Zealand. We do this by examining the impact of the major ‘news’ from Asia on the stock, bond and foreign exchange markets of the two...