Australia: Selected Issues

IMF Staff Country Reports, December 23, 2024

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The paper examines monetary policy transmission via three lenses in Australia.
Macroeconomic dynamics in Australia in the current tightening cycle have not differed significantly from historical experience and from experiences in other major AEs.
The resilience of Australia’s economy in recent years is remarkable, as evidenced by persistently tight labor markets.
Several features of the Australian housing market, most notably the high prevalence of variable rate mortgages, may strengthen monetary policy transmission to households relative to other AEs.
Firm investment in Australia’s nonextractive sector is strongly sensitive to monetary policy changes.
The sensitivity of investment to monetary policy is more pronounced for firms with less liquidity, higher leverage, and higher reliance on bank and short-term financing.
Resilience in Australian corporate balance sheets in recent years may have helped soften monetary policy transmission to investment in the current cycle.

High prevalence of variable rate mortgages may strengthen transmission of monetary policy to household spending.
Comparative statement: transmission to households in Australia may be stronger relative to other AEs due to housing market features.

Firm investment in the nonextractive sector shows strong sensitivity to monetary policy shocks.
Heterogeneity in sensitivity:
- Firms with less liquidity exhibit stronger sensitivity.
- Firms with higher leverage exhibit stronger sensitivity.
- Firms with higher reliance on bank and short-term financing exhibit stronger sensitivity.
Corporate balance sheet resilience in recent years likely mitigated the impact of monetary tightening on investment in the current cycle.

Persistently tight labor markets are a key piece of evidence for the remarkable resilience of Australia’s economy in recent years.
Overall macro dynamics in the current tightening cycle align with historical Australian experience and with other major advanced economies.

International Monetary Fund. Australia: Selected Issues (IMF Staff Country Reports 2024, 361).

Australia: Selected Issues; IMF Country Report No. 24/361; November 13, 2024
- Australia: Selected Issues; IMF Country Report No. 24/361; November 13, 2024 (Markdown version)
- Australia: Selected Issues; IMF Country Report No. 24/361; November 13, 2024 (PDF)