5min chapter

The Joe Walker Podcast cover image

The Silent Hero Of The Australian Economy - Ian Macfarlane

The Joe Walker Podcast

CHAPTER

The Role of Reserve Banks in Central Banking

Rational expectations didn't exist when I was at uni. It really came in, I think, the late 70s and mid 80s. People need to remember there's a distinction between the official cash rate, the reserve bank sets and then the interest rates in the economy. The only rate that you can really control directly is the overnight cash rate. That feeds out across what's called the yield curve. And it's really only the central bank and the banks that can effectively deal at that risk-free rate. Everything else has a risk premium on top of it. If people think that the cash rate is going to go up, then all the way along the yield Curve interest rates

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