This may, in part, reflect the response of businesses to rising competitive pressures following the period when the exchange rate had risen to very high levels, growth  4  For cross-country evidence on the links between reforms to product and labour markets and productivity, see Kent C and J Simon (2007), “Productivity Growth: The Effect of Market Regulations”, RBA Research Discussion Paper No 2007–04.
The literature has typically assumed (i) that a monetary policy tightening is effected by the central bank withdrawing reserves from the system (or slowing the pace of reserves injection); (ii) that banks are required to hold a proportion of transactions deposits in reserves, so that reduced reserves provision entails slower deposit growth; and (iii) that they do not have unrestricted access to liabilities that are not subject to reserves requirements, and so cannot fill the gap left by slower deposit growth and must, instead, slow loan growth, which they do by tightening credit conditions.