Identifying Policy-makers' Objectives: An Application to the Bank of Canada
AbstractIn this paper, we develop a new way to test hypotheses about policy-makers' targets, and we implement that test for Canadian monetary policy. If, for example, the Bank of Canada is using interest rates to target an inflation rate of 2 per cent and there is an 8-quarter lag in the effect of the interest rate on inflation, then deviations of inflation from 2 per cent should be unforecastable and uncorrelated with any information in the Bank of Canada's information set lagged by 8 quarters. This would imply that empirical causality tests of monetary policy on inflation could be very misleading. Our test indicates that there was indeed a major change in the Bank of Canada's objectives about the time when formal inflation targets were announced.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 00-11.
Length: 29 pages
Date of creation: 2000
Date of revision:
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Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-09-18 (All new papers)
- NEP-HIS-2000-09-18 (Business, Economic & Financial History)
- NEP-IND-2000-09-18 (Industrial Organization)
- NEP-MON-2000-09-18 (Monetary Economics)
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- Alan Bollard & Claudio Borio & Pierre Duguay & Glenn Stevens, 2004. "Wrap-up Discussion," RBA Annual Conference Volume, in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting Reserve Bank of Australia.
- Hogan, Seamus & Marianne Johnson & Thérèse Laflèche, 2001. "Core Inflation," Technical Reports 89, Bank of Canada.
- Robert Amano1 & Kim McPhail & Hope Pioro & Andrew Rennison, 2002. "Evaluating the Quarterly Projection Model: A Preliminary Investigation," Working Papers 02-20, Bank of Canada.
- Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Working Papers 06-10, Bank of Canada.
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