How tight are the policy constraints? The policy convergence thesis, institutionally situated actors and expansionary monetary policy in Australia

Abstract

We proceed by briefly outlining the key parameters of the financial globalisation/policy convergence debate. Then, a model of situated institutional behaviour is developed, first in the abstract and then as illustrated by the Australian empirics. Given the substantial degree of central bank independence from government in this case, the main empirical focus is on the behaviour of central bank authorities at the Reserve Bank of Australia. By tracing the history of Australia's relatively expansionary monetary policy, with its comparatively strong emphasis on striking a balance between acceptable levels of inflation and economic growth, the article turns to the task of explaining the logic and dynamics of such a stance and the degree of policy discretion it evinces. At the level of domestic institutions, the theoretical focus is on how institutionally situated and interpretive actors navigate their way with a degree of discretion through the institutional, ideational and structural terrains they confront. The argument concludes with a brief comparison with the much more strongly convergent New Zealand case. Even here, however, attention to the choices of situated actors reveals choices framed more by domestic ideological and political factors than by external constraints or pressures. Finally, we discuss what the analysis of these cases suggests about the policy convergence thesis and wider debates about globalisation.