Task 2: Essay
Essay Topic and Requirements
The article that forms the basis for this assignment is:
Fensom, A. 2017, “Is the deflation bugbear heading down under?”, Morning Star, 10 October.
The above article is available at the following link:
Your task is to use the knowledge that you have gained in this course (including the additional recommended readings at the end of this file) to demonstrate a thorough understanding of the issues raised in this article.
You will demonstrate your understanding by writing an essay of 2000 words (plus/minus 10%, graphs, table of contents, executive summary, and references are not counted towards the word-limit) on the following topic: “RBA and the threat of deflation”. Please make sure that you write everything in your own words. Your essay will be checked automatically via SafeAssign. Aim for a similarity score of less than 25% to avoid a potential plagiarism investigation. Needless to say, there are serious penalties for both the person who copies and the person who allows his/her assignment to be copied (both would most likely fail this course)
Your essay should address the following four aspects/questions:
- What role does RBA play in Australia? Discuss the tools available at the disposal of RBA to carry out its functions.
- Discuss the current economic environment (inflation and interest rates) in Australia, monetary policy employed by the central bank, and effects of those policies on financial markets including asset values and yields.
- In the article, “Is the deflation bugbear heading down under?” (Fensom 2017), economist Paul Dales is quoted as saying, “an average inflation rate of around 2 percent or below could mean that many economies, including Australia, are just one recession away from deflation. In other words, the next economic shock might not need to be very large to push inflation below zero”.
Explain the connection between recession and inflation. Why is deflation so dreaded? Comment by drawing on the experiences of other countries that have experienced deflation.
- In the article, “Is the deflation bugbear heading down under?” (Fensom 2017) leverage dynamics are discussed. Use this as a starting point to explain how leverage matters for the economy.
Please organize your essay as follows:
- Executive Summary (not counted towards the word limit)
- Table of Contents (not counted towards the word limit)
- Main Body (address the four questions explained above)
- References (not counted towards the word limit). Please use Harvard style, which is explained here: http://www.citethisforme.com/harvard-referencing
Readings and Resources Related to the Essay Topic
About Monetary Policy
Global Monetary Policy
Open forum – The role of central banks in financial markets
BIS – Banking on leverage
Central Banks Function and Role
Contagion risk for Australian authorised deposit-taking institutions https://researchonline.nd.edu.au/cgi/viewcontent.cgi?article=1085&context=bus_article
How does monetary policy affect stock markets? https://www.quora.com/How-does-monetary-policy-affect-stock-markets
How Does Monetary Policy Impact Market Performance? https://blogs.cfainstitute.org/investor/2015/11/16/how-does-monetary-policy-impact-market-performance/
Implementation of Monetary Policy: How do Central Banks Set Interest Rates http://www.nber.org/papers/w16165
Monetary policy and Asset Valuation
Some features of the Australian Banking Industry https://financialservices.royalcommission.gov.au/publications/Documents/some-features-of-the-australian-banking-industry-background-paper-1.DOCX
The response of asset prices to monetary policy shocks: stronger than thought https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1967.en.pdf?23d2ec9ce1c93d4315e88bb90d85 31ff
Two Decades of Japanese Monetary Policy and the Deflation Problem
Deflation in a Historical Perspective: https://www.bis.org/publ/work186.htm
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