Inflation Targeting Through Short Term Interest Rate: Australian Experience

Abstract

The article is based on empirical data from Australian Economy. It made an attempt to evaluate the success of Reserve Bank of Australia (RBA) in controlling inflation by aggressively using cash rate. The main objective of the research is to find out the relationship of RBA’s monetary policy with Taylor Rule; whether it follows the Taylor Rule mechanically or uses a different form (e.g. forward looking) or depends on other factors as well. Other models have been used for estimation and the results are analyzed subsequently. The evidences from the test results suggest the successful implementation of interest rate rule by the Reserve Bank to stabilize the inflationary pressure in terms of forward looking perspective.