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The Monetary Policy Transmission Mechanism and Policy Rules in Canada

In: Monetary Policy: Rules and Transmission Mechanisms

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Author Info

  • David Longworth

    (Bank of Canada)

  • Brian O´Reilly

    (Bank of Canada)

Abstract

The inflation-targeting regime in place in Canada requires a clear understanding of the monetary policy transmission mechanism and a way to exploit knowledge of that mechanism in taking policy decisions. This paper discusses the Bank of Canada’s current view of the monetary policy transmission mechanism in Canada and the internal research on which it is based, as well as some of the Bank’s research on policy rules. The main objectives in the research on various elements of the monetary policy framework at the Bank of Canada is to find practical ways of addressing the major types of uncertainty in formulating monetary policy. Uncertainty has become particularly important as a research and practical issue in recent years with the shift in focus to how to conduct monetary policy in a low and stable inflation environment. The concluding section outlines three steps that experience and research has led staff at the Bank of Canada to identify as helpful to policy makers in dealing with uncertainty and providing a sharper focus to discussions at key meetings on monetary policy.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

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This chapter was published in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Monetary Policy: Rules and Transmission Mechanisms, , chapter 13, pages 357-392, 2002.

This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v04c13pp357-392.

Handle: RePEc:chb:bcchsb:v04c13pp357-392

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References

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  1. Coulombe, Serge, 1998. "A Non-Paradoxical Interpretation of the Gibson Paradox," Working Papers 98-22, Bank of Canada.
  2. Lars E.O. Svensson, 1993. "The Simplest Test of Inflation Target Credibility," NBER Working Papers 4604, National Bureau of Economic Research, Inc.
  3. Lars E.O. Svensson, 1998. "Inflation Targeting as a Monetary Policy Rule," NBER Working Papers 6790, National Bureau of Economic Research, Inc.
  4. David R. Johnson, 1997. "Expected Inflation in Canada 1988-1995: An Evaluation of Bank of Canada Credibility and the Effect of Inflation Targets," Canadian Public Policy, University of Toronto Press, vol. 23(3), pages 233-258, September.
  5. Svensson, Lars E. O., 1999. "Price Stability as a Target for Monetary Policy: Defining and Maintaining Price Stability," Working Paper Series 91, Sveriges Riksbank (Central Bank of Sweden).
  6. Clinton, K. & Zelmer, M., 1997. "Constraints on the Conduct of Canadian Monetary Policy in 1990s: Dealing with Uncertainty in Financial Markets," Technical Reports 80, Bank of Canada.
  7. Lars E O Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Bank of England working papers 56, Bank of England.
  8. Eika, K.H. & Ericsson, N.R. & Nymoen, R., 1996. "Hazards in Implementing a Monetary Conditions Index," Memorandum 32/1996, Oslo University, Department of Economics.
  9. Allan Crawford & Seamus Hogan, 1999. "Downward wage rigidity," Bank of Canada Review, Bank of Canada, vol. 1998(Winter), pages 29-48.
  10. St-Amant, P. & van Norden, S., 1997. "Measurement of the Output Gap: A Discussion of Recent Research at the Bank of Canada," Technical Reports 79, Bank of Canada.
  11. Seamus Hogan, 1998. "What Does Downward Nominal-Wage Rigidity Imply for Monetary Policy?," Canadian Public Policy, University of Toronto Press, vol. 24(4), pages 513-525, December.
  12. Duguay, Pierre, 1994. "Empirical evidence on the strength of the monetary transmission mechanism in Canada: An aggregate approach," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 39-61, February.
  13. Svensson, Lars E.O., 1997. "Inflation Targeting: Some Extensions," Seminar Papers 625, Stockholm University, Institute for International Economic Studies.
  14. Armour, J. & Atta-Mensah, J. & Engert, W. & Hendry, S., 1996. "A Distant-Early-Warning Model of Inflation Based on M1 Disequilibria," Working Papers 96-5, Bank of Canada.
  15. Kevin Clinton, 1995. "The term structure of interest rates as a leading indicator of economic activity: A technical note," Bank of Canada Review, Bank of Canada, vol. 1994(Winter), pages 23-40.
  16. Duguay, Pierre & Longworth, David, 1998. "Macroeconomic models and policy making at the bank of canada," Economic Modelling, Elsevier, vol. 15(3), pages 357-375, July.
  17. Pierre Duguay & Stephen Poloz, 1994. "The Role of Economic Projections in Canadian Monetary Policy Formulation," Canadian Public Policy, University of Toronto Press, vol. 20(2), pages 189-199, June.
  18. Nicholas Ricketts & David Rose, . "Inflation, Learning And Monetary Policy Regimes In The G-7 Economies," Working Papers 95-6, Bank of Canada.
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Citations

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Cited by:
  1. Bennett T. McCallum & Edward Nelson, 2004. "Targeting vs. Instrument Rules for Monetary Policy," NBER Working Papers 10612, National Bureau of Economic Research, Inc.
  2. Grande, G., 1997. "Properties of the Monetary Conditions Index," Papers 324, Banca Italia - Servizio di Studi.
  3. Bennett T. McCallum & Edward Nelson, 2005. "Targeting versus instrument rules for monetary policy," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 225-245.
  4. Frank Smets, 1997. "Financial asset prices and monetary policy: theory and evidence," BIS Working Papers 47, Bank for International Settlements.

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