Monetary Targeting

Abstract

Editor's Note: It is a policy of this Journal to present occasional articles on subjects of significant interest in management research or applications. The following paper has been commissioned as a contribution to the series. The paper discusses the topic of monetary targeting, a major issue in macroeconomic policy over the past decade, especially in Australia. From being an academic concern in the mid-1970s, monetary targeting moved to having a role as a frontline strategy in macroeconomic management for the Federal Government by the early 1980s. Then, amid some controversy, the policy was abruptly abandoned at the end of 1984.

With such a sudden end and no subsequent adoption of other monetary targets, the period of monetary targeting confronts the analyst with a set of data which almost represents that rara avis, an experiment in economic macropolicy. In this paper, Dr. Davis reflects on the experience of monetary targeting, reviewing the arguments for and against such policy management in the light of its adoption and progress in the Australian economy. A future paper in this series has been commissioned from Professor Tom Valentine, Centre for Studies in Money, Banking and Finance at Macquarie University, to explore implications in the change in policy from direct to indirect Reserve Bank controls over banks. Professor Valentine's paper will be published in the next issue.