How did you go about structuring the MP essay? 8 pages is plenty for two objectives. Did you do it by chronological order with MP effectiveness to specific periods? I only got 6 pages down going with that structure, but my background theory was limited due to time constraints.
Yeah basically that. I did an extensive intro, including current data about a page. My first paragraph was on the introduction of inflation targeting and its effectiveness, acting as an anchor for inflationary expectations (prevent wage price spiral). I used the fact that inflation averaged 2.6% since 1993 to 2019 compared to previous decades characterised by stagflation and inflation above 10%. (About 2/3 of a page)
My 2nd paragraph was the usage of MP during the GFC (easing cycle) 7% -> 3%, assisted the objective of economic growth as Australia avoided a technical recession (growth was 1.3% as the rest of the world went into recession). In terms of price stability I said it wasn’t the main focus of MP as generally during economic downturns AD falls resulting in deflation. Also sprinkled economic theory and transmission channels here, didn’t go much into how the corridor system worked but just mentioned it (could’ve drawn a diagram but sackk)
3rd paragraph on post-GFC (faster than expected recovery in consumer confidence in part due to strong demand from China). I argued MP was mostly ineffective in dampening economic activity due to external factors (China’s strong growth). Growth reached 4% while inflation reached 3.3%. Here I also bullshited some stats on retail spending continuing to increase just strengthen my point
Also somewhere here I noted RBA increased the cash rate for seven consecutive months 3% -> 4.75%
4th paragraph on period between 2012-19 characterised by a slowdown in the world economy, European sovereign debt crisis, slowdown in China’s growth, China-USA Trade War, Australia’s transition to non-mining sources of growth. Here again I said MP was ineffective but this time in stimulating economy activity as even after they dropped the cash rate from 4.75% to 1% by 2019 economic growth was still slow (1-2%). Also noted that inflation wasn’t a main concern as it was below the target band 1-2%, reaching deflation of -0.3% in 2015.
5th paragraph on COVID-19, which exposed MP subsidiary role in the government’s macroeconomic policy mix due to the cash rate being near zero. Discussed several limitations of MP here such as it being a “blunt” instrument compared to fiscal. Used the stimulus here which showed 2% of the GDP growth was driven by government spending instead of consumption, hence highlighting, MP’s ineffectiveness and more so fiscal policy being the primary tool. Also another limitation being banks not fully passing on rate cuts, and consumers not consuming more due to economic uncertainty. GDP contracted by 7% during the second quarter of 2020, despite cash rate cuts to 0.1% as well as deflation emerged in June 2020. I also name dropped how the RBA had to rely on unconventional MP such as its 100mn quantitative easing bond buying program, 90mn term funding facility, and forward guidance (here is where I used the stimulus and governor lowe’s quote)
Final paragraph on post-COVID, emergency fiscal and MP policies resulting in inflation, referred to current inflation figures 6.1%. Made note of the limited effectiveness of MP due to external factors, RBA attempting to replicate its response to the GFC but this time inflation is supply-side. This paragraph was lowkey rushed but I also included the main drivers of the recent headline inflation rise (automotive fuel, dwelling costs, and food prices). Also name dropped ‘time-lags’ hence overall limiting the effectiveness of MP. Used the fact that even after the RBA increased the cash rate from 0.1% to 1.85%, inflation continued to rise. However, I made note of domestic consumption falling, bullshitted another retail spending stat as well as ‘clearance rates’ showing signs of lower consumption. I also made note of the March quarter growth 3.3% being driven by household spending 3.2%.
and that’s about it.
