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Is the RBA Economic Logic Faulty?*
Author(s) -
Pol Eduardo
Publication year - 2020
Publication title -
economic papers: a journal of applied economics and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.245
H-Index - 19
eISSN - 1759-3441
pISSN - 0812-0439
DOI - 10.1111/1759-3441.12289
Subject(s) - economics , inflation (cosmology) , wage , cash , wage growth , monetary economics , feature (linguistics) , relation (database) , macroeconomics , labour economics , computer science , physics , linguistics , philosophy , theoretical physics , database
Over the last quinquennium, low wage growth has been a distinguishing feature of the Australian economy preventing the Reserve Bank of Australia (RBA) to achieve its inflation target. Notwithstanding the current record low cash rate, wage growth remains low. This paper casts doubts about the economic logic of the RBA in relation to the behaviour of wages. We argue that an unlimited supply of labour leads to a vertical Phillips curve in the short‐run , and therefore, significant wage growth cannot be expected to happen irrespective of how low the cash rate is.