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Abstract
This study explores the impact of monetary policy (MP) on economic growth in Australia using the autoregressive distribution lag (ARD) approach and error correction model (ECM). Time series data were retrieved from World Development Indicators from 1989-2019, with diagnostic tests confirming the model’s validity. Findings reveal that in the short-term, broad money supply (BMS), and deposit interest rates (DIR) positively and significantly impact GDP growth, conversely lending interest rates (LIR),real interest rates (RIR), and reserve and related items (RES) negatively and significantly impact GDP growth. In the long-term, BMS, DIR, and RIR have positive influence on GDP growth; conversely, RES, and LIR has adverse and relevant impact on GDP growth. 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 balance contractionary and growth-oriented strategies for Australia’ economy.
