Australia’s RBA is asleep at the wheel

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Last week I satirised Australia’s out­mod­ed belief that the rate of inter­est can be used to fine tune the econ­o­my. This belief was ensconced in the so-called “Tay­lor Rule”, which accu­rate­ly described what cen­tral banks tend­ed to do until the eco­nom­ic cri­sis hit in 2007. That rule saw the infla­tion rate and the unem­ploy­ment rate as the two key eco­nom­ic indi­ca­tors, and the inter­est rate as the key mech­a­nism need­ed to achieve an accept­able bal­ance between them.

Of course, the cri­sis blew that rule out of the water, and issues that cen­tral bankers once dis­missed as unim­por­tant — like, for exam­ple, asset price bub­bles or the lev­el of pri­vate debt — sud­den­ly had to be dis­cussed.

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.