HELP! - inflation (1 Viewer)

[aditya]

what are the policy options that are avaliable to deal with the issue of inflation, (i.e. fiscal policy, monetary policy, structural change, trade policy, prices and incomes policy, labour market policy).

if you could, evaluate the effectives of the policies in dealing with the issue

and - your personal possible solution to the problem =)

finally - the future outlook for this issue in the australian economy...

if you could just answer the first part of this thread it would be highly appreciated... the other two would be a bonus...

thanks in advance!

 

[i-color]

wel u pretty much listed them all already. but inflation is mainly monetary policy where the RBA targets a 2-3% inflation. And that has been very effective since inflation has been low for the past decade or so (except for the one off blow out in 2000-2001 du eot the effect of the GST)

Fiscal policy does not really target inflation, but it directly impacts by contracting or expanding economy.

Micro reform- labour market policies have been the most significant in keeping cost push inflation. intro of enterprise bargaining have kept wages low, and increases in wages have been in line with productivity growth. Also trade reform, decrease protection has meant lower imported inflation etc etc --> these have been effective in solving the STRUCTURAL problems associated with inflation in aust

mmmm personal solution i always just wrote in my essays....although inflation has been low, a combination of sound macro and micro policies are needed to maintain inflation at a low rate etc etc

future outlook......maybe talk about the budget and how it forecasts inflation to move toward the lower range of the RBA target due to easing of domestic activity and effects of the drought etc. It appears that inflation will be kept relatively stable at 2-3% due to sound monetary policy by the RBA, as well as sound micro and fiscal policy as a adjunct to monetary policy.

 

[aditya]

... hehe thanks for that

 

[George W. Bush]

well the domestic economy is slowing, but nontradeable inflation is quite high (4.1% i think) with inflation being kept in check by the appreciation of the AUD over late2003-early2004 (with tradeables deflation of -0.5%), so a significant AUD deprecitation threatens to push the upper edges of the target range.

 

[aditya]

yes as it always is, but I went to a lecture and the guy was full certain that if no externalities occur than this is the right value for the AUD agains thte USD....


i disagree :s i mean cmon, the au economy is nothing compared to the us, the usd should be killing the pound... maybe someone can clariffy y the pound is held in such high value?

 

[George W. Bush]

The dollar value of the currency has little to do with the strength of the economy - i mean, do you really think that say the Australian economy is a million times better than the Turkish?

The Australian dollar has been appreciating because of high interest rate differentials (at 5.25%, compared to ~1% US and ~0% in Japan) which attracts investment in bonds basically. Also the currency has traditionally moved in line with the terms of trade, which are at record highs due to high resource prices and cheaper manufactued goods, basically both because of China's rapid industrialisation. lastly, the AUD has been driven somewhat by central banks around the world holding an increasing amount of AUD in their foreign currency reserves, but this is a rather minor factor.

Recently, the fears of tightened monetary policy due to strong employment figures in the US have driven the AUD down somewhat, although these concerns have abated somewhat based on recent data - I can't remember exactly what it was, but I think it might have been inflation?

 

[aditya]

yeh so if everything goes good, then the dollar apprecitates, but evertyhign cant be good ALL the time...

china is halting it's economy, like you said the demand for resources from china has been a great help to australia- i remember somebody saying that australia has eben very lucky in terms of finding trading partners, first tehre was england, then the war came, then there was japan, the war came, then we found asia/china- but now china is slowing down, and although india is coming up, they seem to demand little of australia's resources at the moment...

But another thing, i remember the interest rates in 1995 were around 12-13%... this is just out of memory more than researching statistcs, so im not aware of the world state, but i believe that us was experieicng a boom in that time? this would've meant that interest rates were low...

so on the bases of what u said.. shouldnt the AUD have sky rocketed past 1dollar even? i mean 12%... tahts huge... u cant get that much on risky debentures today....

 

[George W. Bush]

But as the AUD appreciates, the yield for a foreign investor will decrease

 

[aditya]

cool

 

[Craig]

Originally posted by George W. Bush
But as the AUD appreciates, the yield for a foreign investor will decrease

definitely...also our exporters lose international competitiveness, which can impact upon the CAD, which, if becomes unsustainable, can have far reaching consequences.