RDP 9703: The Implementation of Monetary Policy in Australia Appendix A: Adjustment of Actual Cash Rate to Target Rate
July 1997
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Table A1 reports the estimation results for the following equation,
| where: | rt is the actual (unofficial) cash rate; and |
 is the target cash rate. |
Daily data were used in estimation and seven lags of the changes in both the actual and target cash rate were included initially. We then used the general-to-specific methodology to obtain a more parsimonious specification. The first sample period (the ‘pre-announcement’ period) runs from 1 July 1985 to 22 January 1990. The second period (the ‘announcement’ period) runs from 23 January 1990 to 2 September 1996.
| Pre-announcement period | Announcement period | |
|---|---|---|
| Constant | 0.11 (0.08) |
0.00 (0.00) |
| Δ in cash rate {t−1} | −0.26 (0.07) |
0.00 (0.04) |
| Δ in cash rate {t−2} | −0.25 (0.05) |
−0.04 (0.04) |
| Δ in cash rate {t−3} | −0.18 (0.05) |
−0.10 (0.04) |
| Δ in cash rate {t−4} | −0.17 (0.05) |
.. |
| Δ in cash rate {t−5} | −0.06 (0.04) |
.. |
| Δ in cash rate {t−6} | −0.11 (0.04) |
.. |
| Δ in target rate | 0.34 (0.06) |
0.79 (0.05) |
| Δ in target rate {t−1} | −0.01 (0.07) |
0.07 (0.04) |
| Δ in target rate {t−2} | 0.18 (0.07) |
0.04 (0.04) |
| Δ in target rate {t−3} | 0.04 (0.08) |
0.08 (0.04) |
| Δ in target rate {t−4} | 0.20 (0.08) |
.. |
| Target rate {t−1} | 0.15 (0.03) |
0.47 (0.07) |
| Cash rate {t−1} | −0.15 (0.03) |
−0.47 (0.07) |
 |
0.21 | 0.65 |
| Standard deviation of cash rate changes | 0.60 | 0.10 |
| Note: Standard errors are in parentheses below coefficient estimates. | ||