Monetary Policy

Monetary policy is conducted by the Federal Reserve Bank.  It sets interest rates with the aim of affecting economic growth, employment, and inflation and can either be expansionary and contractionary.  The interest rates in the US are lower than interest rates in Australia because of Australia’s exports from industries such as wine, tourism, education, and mining.

Every bank was hit by the global financial crisis, but some suffered more than others.  Australia, having a smaller economy compared to the US, did not suffer as greatly.  According to the 2010 Policy Brief article, Australia’s businesses and citizens were spared some of the effects of the financial crisis because of the monetary and fiscal policies Australia previously had in place.  The Australian Competition Law gave competitive markets the strength they needed in order to avoid some of the effects of the crisis (Policy Brief).   

Due to the impact the financial crisis did leave on Australia, inflation costs rose.  Richard Finlay, an economist at the Federal Reserve Bank of Australia, explained that as consumption and private investment decrease, inflation costs rise in order for businesses to benefit.  Australia’s goal for inflation is between 2-3%. 

Exports for mining coal, metal ores, and other minerals has increased by 10.5% from 2000 t0 2007.  Education has increased by 3% and tourism decreased by 1.8% (Reserve Bank Bulletin).  The decrease in tourism relates to inflation.  As inflation occurs, prices rise and less people travel.  The other two industries have increased their export values, in opposition to the trend, because they attract Asian importers.   Service exports, especially education, are demanded by Asia from the effect of appreciation.

The Australian Central Bank and the US Federal Reserve System perform separate jobs.  The Federal Reserve System exists to provide emergency services to US citizens abroad.  For example, they can help with passport replacement, wiring money, and in some cases provide lawyers or bail for jail.  The Central Bank is the center of the banking industry in Australia.  They set interest rates and control inflation as well as manage the side effects of each of those. 

The US consulate provides emergency services to foreign countries.  The speaker from the Consulate talked about the United State’s relationship with Australia and described it as the best of any other country.  For quite a long time Australia has been supportive of the US and its plans.  The free trade agreement allows free trade to occur between the United States and Australia.  Exports become easier, and Australia’s wine industry benefits from its place in the FSO competitive wine market.