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Identifying Policy-makers' Objectives: An Application to the Bank of Canada

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Author Info

  • Rowe, Nicholas
  • Yetman, James

Abstract

In 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 Info

Paper provided by Bank of Canada in its series Working Papers with number 00-11.

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Length: 29 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:bca:bocawp:00-11

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Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/

Related research

Keywords: Inflation Targets;

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Cited by:
  1. 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.
  2. Hogan, Seamus & Marianne Johnson & Thérèse Laflèche, 2001. "Core Inflation," Technical Reports 89, Bank of Canada.
  3. Robert Amano1 & Kim McPhail & Hope Pioro & Andrew Rennison, 2002. "Evaluating the Quarterly Projection Model: A Preliminary Investigation," Working Papers 02-20, Bank of Canada.
  4. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Working Papers 06-10, Bank of Canada.

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