Australia Final Paper

Table of Contents:

Executive Summary……………………………………………………..p.2
Section 1: Introduction…………………………………………………p.3
Section 2: The Reserve Bank of Australia……………………………pp.3-4
Section 3: Gross Domestic Product…………………………………..p.5
Section 4: Unemployment………………………………………………pp.6
Section 5: Inflation………………………………………………………pp.7
Section 6: Interest Rates……………………………………………… pp.8-11 Section 6.1: Cash Rate………………………………………… pp.8-9 Section 6.2: Discount Rate…………………………………… pp.10-11
Section 7: Money Supply……………………………………………… pp. 11-12
Section 8: Conclusion…………………………………………………..p.13
Section 9: Bibliography……………………………………………..….pp.14-15

Executive Summary

The Reserve Bank of Australia (RBA) is Australia’s central banking authority, mandated and (equipped with tools to) maintain a stable Australian economy. By adapting and implementing monetary policy in times of both good and bad, the RBA seeks to ensure a stable national currency, full employment, and an overall prosperous economic environment for Australian citizens. Thus far, it has succeeded in its charge, most notably during drastic events such as the 2008 financial crises (comparatively speaking). Our research paper seeks to examine and analyze Australia’s economy—as well as the RBA’s role in it— during the 2008 financial crisis to better understand said comparative outperformance. Examining a multitude of economic variables and their effects, as well as contrasting all policies and variables with the US economy (our benchmark for the study), we find that the CBA’s aggressive policies were instrumental in weathering the recession better than its counterparts; though they would not have been realistic without a healthy economic base.

1. Introduction
This paper seeks to explore the various ways the Reserve Bank of Australia leveraged its monetary toolkit to navigate the 2008 recession, evaluating outcomes on both an absolute and comparative (in specific, vs. the United States) basis. In an effort to capture this performance, we give a brief history of the Reserve Bank & its powers before jumping into a robust analysis of various key economic indicators, ranging from GDP to M3. While sections are separated in structure, take note that almost all of the sections are inextricably linked with others, and play a material role in the bank’s (and the overall economy’s) capacity to weather the crisis in a manner few other developed nations were capable of doing.

2. Reserve Bank of Australia
The Reserve Bank of Australia (RBA) is Australia’s Central Banking authority, charged with three main tasks1:
1) the stability of the currency of Australia [CPI target of 2-3%];
2) the maintenance of full employment in Australia; and
3) the economic prosperity and welfare of the people of Australia.

To accomplish its charter and goals, the RBA has a number of monetary mechanisms it can call upon, including-- but not limited to: (1) the power set a target for cash rate (the rate that banks lend and borrow overnight on an unsecure basis), (2) the power to maintain said cash rate by altering exchange settlement balances held by commercial banks, (3) the ability to engage in transactions in FX market to manage foreign currency reserves, and (4) the regulatory authority to implement new policies in both the foreign and domestic market.
The RBA has the authority to execute the above strategies with relative impunity thanks to its loosely qualified charter and flexible governance structure, which affords it significant autonomy. The only significant linkage between the RBA and Australia’s government is the requirement that the RBA Governor maintains contact with Secretary regarding Treasury & Reserve matters, and vice versa.
The RBA’s roots can be traced as far back as 1911, with the formation of Australia’s first national bank, the “Commonwealth Bank of Australia”. The CBA was initially structured as a rather weak national bank-- it was given no power of note issuance or

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