The Board of the Reserve Bank of Australia (RBA) holds meetings on the first Tuesday of most months to decide the stance of monetary policy. The official cash rate could be adjusted after such a meeting. After each meeting, the RBA will first make a brief statement (Monetary Policy Media Release) stating the Board’s decision on the official cash rate. A much more detailed statement (Statement on Monetary Policy) will be released later. The Statement on Monetary Policy provides a lot of information about how the Board reached its decision.
Students are required to make a forecast of the official cash rate following the Board meeting scheduled on 6 June 2017. Students are required to explain their forecast in a statement something in between the Monetary Policy Media Release and the Statement on Monetary Policy (i.e. longer than the former but shorter than the latter).
It is important to show both evidence (e.g. statistical figures) and judgment (e.g. what that figure means to growth or inflation for Australia).
The first chapter of RBA’s Statement on Monetary Policy does not provide all the statistical evidence as they are contained in subsequent chapters. Students are expected to provide those figures either in the text or in the footnotes. While the statement is on domestic monetary policy decision, international economic and political factors can play an important role.
Students are allowed to do the assignment individually or as a group of two (but no more than two). The same two students can partner in either the Report or Essay assignment, but not both.
In the case of group submission, the two students will be given the same mark (e.g. if the paper is given a 12% mark, both students will get 12%). If students want to do a group submission, it is their own responsibility to form a group, work out the workload allocation and resolve any dispute between the group members. Partnership breakdown or dispute will not be accepted as an excuse for late submission. Only one of the group members needs to submit the assignment, and the names and student numbers of both members should be clearly indicated in the assignment.
Samples from a previous year will be put on the course website. These samples all received a fairly good mark.
The assignment must be typed.
If the official cash rate before the meeting was 5% and you expect the Board to increase it by 0.25%, then your submitted answer should be “5.25%,” rather than “+0.25%.”
The writing style should be similar to that of the RBA’s Monetary Policy Media Release. (Just imagine yourself as the RBA official who wrote it!)
Keep the style and layout simple. Here is some guidance. Font: 12 pt. Times New Roman for main text, 10pt for footnotes; single spacing; 2cm top and bottom margins; 2cm side margins.
It has to be within two A4 pages(one-sided), including the footnotes.
Referencethe information sources, particularly figures, in the footnotes.
Some common mistakes that led to mark deduction are:
Used and drew inferences from not up-to-date statistics. In particular, publications like World Economic Outlook and OECD Economic Outlook take a lot more time to collate international data sources, and could be outdated at the time of release.
Overly relying on a few reference sources which are not that credible, such as newspapers. Together with the last point, it means that there could be a tradeoff between being up-to-dateand having credibility. The challenge here is to extract useful information from different sources and to integrate them together. The ABS and RBA are the best sources of recent Australian macroeconomic data.
Focusing on the past events and forgetting that the setting of monetary policy by the RBA is forward looking.
Making too strong inferences from observed facts. E.g. “The terrorist attack in Middle East is likely to slow down the global economy.”
Citing a lot of figures but without pointing out their implicationsto inflation or growth.
Over emphasizing on the latest change of a particular economic variable, instead of analyzing it in a perspective. For example, “April witnessed a slump in consumer confidence.” instead of “Consumer confidence has dropped in April, but was still substantially above the three year average.”
Focusing on a few things only and therefore lack of comprehensivenessin the analysis.
Putting too much faith on newspaper analyses and market forecasts (on various things, not just interest rates). Remember, journalists look for eye-catching headings and tend to exaggeratethe implications of selective statistics.
Inappropriate referencing formats, such as not indicating the article titles or not indicating what points they referred to. APA
Inconsistencybetweenindividual statements or between the analysis and the conclusion. E.g. some students had cited a lot of factors in support of rising inflation pressure but at the end concluded that there was no need to raise the interest rate.
Student cut and pasted statements/sentences from various sources instead of writing in their own words. Consequently, those “Frankenstein statements” did not read smoothly and did not provide a coherent view of what was going on.
Warning: Cutting and pasting materials from any sources is an act of plagiarism; if proven, it could result in zero mark.
Examples of Data Sources
Central banks: RBA, European Central Bank (Monthly Bulletin), FRB, Bank of Japan
Australian Bureau of Statistics
World Economic Outlook.IMF and World Bank
Economic Updates. Queensland Treasury Corporation
Mid-Year Economic and Fiscal Outlook.Australian Government, the Treasury
Research Report by commercial and investment banks
Mass Media, e.g. Economists, Australian Financial Review, Business Week, Wall Street Journal, BBC, Reuters, Financial Times, Associated Press
The newspaper Australian Financial Reviewregularly reports the forecasts of market economists on monetary policy changes, especially in the lead up to a Board meeting. However, one should note that market economists (as well as academics) make wrong forecasts all the time!
Previous Monetary Policy Media Releasecan be found on the RBA website
Previous Statements on Monetary Policyon monetary policy can be found on the RBA website
Minutes of the RBA Board Meeting can be found on the RBA website