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The Effect of Changes in Monetary Policy on Consumer and Business Confidence
Author(s) -
Kirchner Stephen
Publication year - 2020
Publication title -
australian economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.308
H-Index - 29
eISSN - 1467-8462
pISSN - 0004-9018
DOI - 10.1111/1467-8462.12365
Subject(s) - consumer confidence index , surprise , monetary policy , interest rate , monetary economics , economics , cash , macroeconomics , psychology , social psychology
Abstract This article examines the response of consumer and business confidence to five measures of change in Australian monetary policy. Actual, expected and surprise increases in the official cash rate target and related interest rates are shown to negatively impact consumer sentiment. Business confidence is less affected by increases in the cash rate target, but is negatively affected by an increase in the 90‐day bank accepted bill rate. Tests for model stability and asymmetries in the response of sentiment to increases and decreases in interest rates otherwise find only limited evidence for monetary policy having a perverse signalling effect on sentiment.