Money growth targets have been abandoned in Australia in favour of an inflation target because:

Question

Quizplus · Accepted Answer

Australia has shifted from money growth targets to an inflation target for several reasons. Firstly, it is indeed easier and more transparent to communicate changes in monetary policy through inflation targeting, as the general public can more easily understand and relate to inflation figures. Secondly, the relationship between monetary aggregate growth and inflation has been found to be loose, making it difficult to control inflation strictly through money supply targets. Lastly, inflation targeting allows for a focus on medium-term price stability while also providing the flexibility to address short-term output fluctuations. Therefore, all the reasons listed contribute to why inflation targeting is preferred over money growth targets in Australia.

Money Growth Targets Have Been Abandoned in Australia in Favour