Insight: RBA Chief Economist Ellis’ Thought Leadership And Implications For MonPol
- Published on
- 25 Jun 2021, 11:17 AM
(This Insight was first published on Thursday, June 24 at 7:21PM as an email to premium subscribers)
By Sophia Rodrigues
(Sydney, June 24, 2021)—As the chief economist of the Reserve Bank of Australia, Luci Ellis makes a significant contribution to monetary policy discussions and therefore any thought leadership from her should be assessed closely.
So, when Ellis talks about structural adjustment in the economy in the post-pandemic era, one needs to pay close attention because it will have an influence on the RBA’s monetary policy settings.
The main message is that monetary policy would err on the side of highly supportive settings to ensure demand remains robust for longer.
In a speech on Wednesday, Assistant Governor Ellis talked about an additional reason to support demand during the post-pandemic recovery phase, beside the main reason which is to achieve full employment and inflation sustainably in the target range.
According to Ellis, demand needs to be supported to help structural adjustments that might be needed in the recovery phase, because such adjustments are easier when demand is strong.
“It is far easier for a firm to change business models when demand is robust, and far easier for a worker to switch industries or careers when there are plenty of jobs available,” Ellis said.
“To the extent that the post-pandemic world is indeed different from the pre-pandemic one, a robust recovery and expansion can smooth the transition,” she added.
For all these reasons, the RBA remains committed to maintaining highly supportive monetary conditions, Ellis said in the concluding part of her speech.
LIKELY SHIFTS
In the speech, some of the likely structural shifts Ellis talked about were with respect to work from home and its implications for housing construction, urban planning, transport and the provision of social services and infrastructure.
Among other things, Ellis also talked about adjustments in office space, online retail and services and business travel.
Some of these shifts could be transitory but some could alter patterns of relative growth. In the case of office and retail property at least, Ellis pointed to the possibility of them turning out to be surplus to requirements which would take a while, and some creativity, before it is repurposed.
In case of supply networks, production and shipping have been disrupted but so far there has not been a wholesale rethinking of supply relationships or reshoring. If that happens in future, that would be a significant, and a positive, structural adjustment.
The RBA’s job is to be alert to any adjustments that might occur in the economy and help in the transition because only then can they hope to achieve inflation sustainably in the 2% to 3% target band. The only way the RBA can do it is to keep monetary policy easy for longer to support demand.
--Contact: Sophia@centralbankintel.com