New Statement on the Conduct of Monetary Policy

I'm quoted in this AFR story on the government's negotiations with the RBA over a new agreement on monetary policy. Needless to say, I don’t accept the premise in the headline that holding the RBA more accountable for meeting the inflation target will lead to house price ‘bubbles.’

This story accusing the government of "blame shifting" and "misdirection" for trying to hold the RBA accountable for meeting the inflation target has things exactly backwards. As I note in this op-ed, RBA Governor Lowe has conflated structural and cyclical policy to shirk the RBA’s singular responsibility for demand management.

Worth noting that the debate in the US is by how much the inflation target should be raised, not lowered. Evidence points to an optimal target consistent with the RBA's exisiting midpoint.

As I have argued previously, the Treasurer should require the RBA Governor to front a press conference after each CPI release to explain the inflation outcome and underscore the RBA’s responsibility for inflation outcomes.

An even stronger accountability mechanism would be to make the Governor’s re-appointment conditional on inflation averaging between 2 and 3 per cent between now and 2023. If the Governor won’t agree to such a provision, we know he is not commited to the inflation target.