Resilience of financial systems to external shocks : lessons from Australia

During the past 14 years the Australian economy has experienced a steady high rate of economic growth with a very low inflation. Paul Krugman called Australia the "miracle economy" of the region. This outstanding performance occurred despite the Japanese stagnation throughout the 1990s, the Asian financial crisis of 1997-98 and the dot-com crashes in the U.S. Many experts expected the Australian economy would be adversely affected by these developments. The Australian financial system survived the Asian crises and other external shocks quite successfully and managed to maintain a robust growth that was exceptional by OECD standards. The deregulation of the financial markets and the flexibility of the exchange rate contributed to the resilience of the economy. This paper demonstrates the policy measures that were introduced in Australia and how they helped to cushion the economy against external shocks.