On the first Tuesday of every month (except in January) the Board of the Reserve Bank of Australia (RBA) meets to decide on a target for the cash rate. This decision is highly significant for the wider economy and is therefore closely monitored by the financial markets.

The CAMA RBA Shadow Board consists of nine voting members and one non-voting chair, all distinguished macroeconomists, who offer their own policy recommendations one day before the official RBA decision.

A novel feature of the CAMA RBA Shadow Board is the requirement that members offer their policy recommendations probabilistically. When a central bank sets the preferred target cash rate, the decision necessarily constitutes a compromise, a careful balancing and weighting of all salient upside and downside risks. The imprecision stems from the uncertainties associated with real-time measurements, latent variables, model type, model parameters and the inherently unpredictable nature of the macroeconomy. Whatever rate the central bank sets, there is a considerable probability that a different rate would be more appropriate.

Nevertheless, most central banks provide little quantifiable information on the uncertainty confronting policymakers. Conventional central bank communication of interest rate setting does not formalize risk considerations and the probability of extreme events. The probability that the interest rate should be substantially different from the “most preferred” target rate receives little attention. Central banks currently record formally neither the uncertainty experienced by individual board members, nor by the board as a whole.

Each member of the CAMA RBA Shadow Board records the uncertainty by giving probabilistic assessments of the appropriate (target) interest rate for each round. The higher the percentage attached to a given interest rate, the more confident the member is that this rate is the appropriate target.

The aim of the CAMA RBA Shadow Board is to:

  1. foster a lively and informed debate in the community about each interest rate decision and about macroeconomics more generally;
  2. show how individual policy makers can quantify the uncertainty surrounding a preferred target cash rate and how these uncertainties may be aggregated to provide a probabilistic collective view;
  3. generate data on probabilistic monetary policy decision-making that may be used in future research.

We reiterate that this project is not aimed at predicting RBA Board behaviour. In common with shadowing exercises in other countries (e.g. the US Shadow Open Market Committee), this is a normative exercise in control, not forecasting.

The CAMA RBA Shadow Board (initially going by the name of PRO-POL) was conceived in August 2011 by Dr. Timo Henckel, Prof. Shaun Vahey, and Dr. Elizabeth Wakerly, all of CAMA. Until June 2013 the logistics were handled by Mr. Damien Hughes and Dr. Elizabeth Wakerly.

A working paper explaining in more detail the objectives and mechanics of the CAMA RBA Shadow Board project is available here:

Updated:  30 September 2023/Responsible Officer:  Crawford Engagement/Page Contact:  CAMA admin