Assessing the Impact of Monetary Policy Dynamics on Economic Growth in Australia: An Autoregressive Distributed Lag (Ardl) Method

This study explores the impact of monetary policy (MP) on economic growth in Australia. The method used is the autoregressive distribution lag (ARD) approach and error correction model (ECM). Secondary time series data were retrieved from the World Bank Indicators from 1989 to 2019. Several pre-and post-testing were done to test the viability of the approach and the tests confirmed that the model is empirically feasible. The results state that in the short-term, broad money supply (BMS), and deposit interest rates (DIR) positively and significantly impact Australia’s GDP growth; conversely lending interest rates (LIR), real interest rates (RIR), and reserve and related items (RES) negatively and significantly impact GDP growth in Australia. In the long-term, BMS, DIR, and RIR have positive influence on GDP growth in Australia; conversely, RES, and LIR has adverse and relevant impact on GDP growth in Australia. The research highlights the importance of adopting restrictive monetary policies for short-term stabilization. It underscores the role of progressive policies for sustainable long-term growth. Policymakers should implement contractionary measures to strengthen the economy. In the long run, policymakers should adopt progressive policies to stimulate sustainable growth in Australia.