In a recent post on Mike Kimball´s ‘electronic money tweets’, Scott writes:
For instance, consider these Kimball tweets:
Australia is not a good example. I don’t think Australia was ever near the Zero Lower Bound. . . .
e-money is only directly important when you hit the Zero Lower Bound.
Australia did not hit the zero bound precisely because they followed a policy that (de facto) mimicked the path of NGDPLT. So it’s a great example. If you have sound monetary policy you probably won’t hit the zero bound in the first place, unless you are a slow-growing economy with an ultra-low inflation target (i.e. Japan.) Then the zero bound might even become the norm. But why would a country want to do that?
Australia is certainly one of the few (Poland is another) countries that escaped a major upheaval in 2008. The chart shows that from late 2004, NGDP growth began to trend up after many years of fluctuating around a 6.2% average level.
As luck would have it, the crisis caught Australia in a ‘favorable’ moment. NGDP fell strongly but bounced back quickly and forcefully. Although NGDP is still above trend, it is converging to trend from above. Hopefully, the RBA will stabilize NGDP growth as soon as it gets back to the trend level.
The next chart shows that interest rates are certainly not a good indicator of the stance of monetary policy. In 2004-08, although the RBA was raising rates NGDP climbed above trend indicating that monetary policy was still ‘loose’.
No mystery then that house prices did not tumble in Australia as they did in the US.