Today in The Sydney Morning Herald:

THE dollar soared and financial markets began pricing in interest rate rises after the Reserve Bank governor declared that he will soon have to push up rates and that he might do so without waiting for unemployment to stop climbing.

The bank is thought to have never before lifted interest rates while unemployment was rising.

But yesterday the governor, Glenn Stevens, told a business audience in Sydney that he did not regard himself bound by such a convention.

”˜”˜I’ve never seen written down, or I have never heard in discussion in the institution, some rule of thumb that says we wait until unemployment has peaked before we lift the cash rate,’’ he said. ”˜”˜It depends what else is happening, and also depends how low we went. [Rate rise looming, warns top banker. Peter Martin. The Sydney Morning Herald. July 29 2009]

I am not quite sure if the reporter is right when he writes “[t]he bank is thought to have never before lifted interest rates while unemployment was rising”.

Maybe, I am just not familiar with Australian thinking but central banks — that is, independent central banks — typically target inflation and not unemployment rate.

Central banks may incorporate other factors like economic growth, for instance, but the primary factor, as I understand it through my pre-2008 crisis economics lesson, is always inflation.

One Response to “[2045] Of unemployment targeting? That is new…”

  1. on 31 Jul 2009 at 07:35 johnleemk

    Maybe they take the Phillips curve a little too seriously…

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