Perceived Monetary Policy Rules: Evidence from Professional Forecasters in Australia

We study how professional forecasters perceive a central bank’s reaction function and how those perceptions evolve over time, using survey evidence from Australia between 2015 and 2025. Adapting recent survey-based approaches, we recover time-varying perceived policy rules that map expected macroeconomic conditions into expected policy rates. We find that perceived responsiveness to inflation was modest prior to the pandemic, collapsed at the effective lower bound, and rose sharply only after sustained policy tightening began in 2022. Central bank communication about labour market conditions and financial stability shaped perceptions of the reaction function. However, during periods of elevated uncertainty—particularly following COVID—beliefs about the importance of inflation adjusted only after forecasters observed realised policy actions, highlighting the limits of guidance alone. We also show that heterogeneity in long-run beliefs, including views about long-run inflation, plays an important role in shaping interest rate expectations, but can be parsimoniously captured using forecaster fixed effects.