Modelling Recent Developments in Australian Asset Markets: Some Preliminary Results

This paper represents a first attempt to model the macroeconomic implications of recent changes in Australian financial markets: the floating of the Australian dollar; the introduction of tendering for government bonds; and the deregulation of banking in August 1984. The RBII model is adapted to incorporate these changes, and subjected to a series of shocks in simulation. The results are used to illustrate the properties of the modified model. The conclusions suggest that the model’s behaviour is consistent with received theory; monetary control is facilitated and a form of the Fleming-Mundell result holds in the longer term. An earlier version of the paper was presented to the thirteenth Conference of Economists, Perth, August 1984.