Monetary Policy impact same as Interest Rates impact?

[shooterblitz]

Just wanted to clear up something; when we talk about the impact monetary policy will have on the Australian government's goals (full employment, sustainable economic growth, low inflation), is that pretty much the same as saying the impact of changes in interest rates on the Australian government's goals? Cheers!

[abcdqdxD]

Just wanted to clear up something; when we talk about the impact monetary policy will have on the Australian government's goals (full employment, sustainable economic growth, low inflation), is that pretty much the same as saying the impact of changes in interest rates on the Australian government's goals? Cheers!

Pretty much, yes. A large part of monetary policy is based on the manipulation of interest rates, but keep in mind that dirty floats/persuasion also fall under MP.

[shooterblitz]

Pretty much, yes. A large part of monetary policy is based on the manipulation of interest rates, but keep in mind that dirty floats/persuasion also fall under MP.

Awesome! Thanks for confirming

[chasej]

Just wanted to clear up something; when we talk about the impact monetary policy will have on the Australian government's goals (full employment, sustainable economic growth, low inflation), is that pretty much the same as saying the impact of changes in interest rates on the Australian government's goals? Cheers!

Sort of. But when talking about impacts of monetary policy it's good to keep in mind that monetary policy doesn't directly effect interest rates but rather monetary policy effects the cash rate which has a flow through effect of encouraging banks to change interest rates (as the banks try to stay -some what- competitive).

It's also normally good to talk about some of the transmission mechanisms through which changes in the interest rate (caused by changes in monetary policy settings, which changed the cash rate) actually make consumers/investors etc. change their behaviour. Off the top of my head they are cost of credit, cash flow, value of assets, the value of the AUD in the FOREX market and I think there is one more which I can't remember. It should all be in your text. (Economic fundamentals text mentions 5 I think, but it should suffice to learn 2-3 transmission mechanisms in detail).

(As abcdqdxD mentioned there are also a couple of other things would fall under the category of monetary policy)

[TazzyGirl]

Yesss. Particularly to do with full employment goals of the RBA. If interest rates are lower...households have more discretionary income, meaning they spend more money on goods and services...which causes more labour demand = unemployment rate decreases.