The lags of monetary policy

The length of the transmission lags from monetary policy to output has been the subject of much research over the years, bur there are serious problem s in isolating the lags with any precision. This paper uses a simple model of Australian output to estimate the length of the lags, and then examines how attempts to grapple with the estimation problems might change the resul ts. We estimate that output growth falls by about one-third of one pet cent in both the first and second years after a one percentage point rise in the sh ort-term real interest rate, and by about one-sixth of one per cent in the third year. This implies an average lag of about five or six quarters in mo netary policy's impact on output growth. Each of these estimates is, howeve r, subject to considerable uncertainty. We discuss the implications far pol icy of these relatively long and uncertain lags. Finally, we find no eviden ce that the average lag from monetary policy to output growth has become an y shorter in the 1990s.