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Nominal Rigidities and Monetary Policy in Canada Since 1981

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  • Ali Dib
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File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp02-25.pdf
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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 02-25.

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Length: 54 pages Abstract: This paper develops and estimates a dynamic, stochastic, general-equilibrium model with price and wage stickiness to analyze monetary policy in Canada. A monetary policy rule allows the Bank of Canada to systematically influence the short-term nominal interest rate and money growth in response to inflation and output deviations. The structural parameters of the model are estimated econometrically using a maximum-likelihood procedure with a Kalman filter. The estimates reveal that either price or wage rigidities are key nominal frictions that generate real monetary effects. Furthermore, the simulation results show that the Bank has, since 1981, increased the short-term nominal interest rate in response to exogenous positive demand-side disturbances, and used modest but persistent reductions to accommodate positive technology shocks.
Date of creation: 2002
Date of revision:
Handle: RePEc:bca:bocawp:02-25

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Keywords: Monetary policy framework;

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References

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  1. Jean-Philippe Cayen & Simon van Norden, 2002. "La fiabilité des estimations de l'écart de production au Canada," Working Papers 02-10, Bank of Canada.
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Cited by:
  1. Ali Dib, 2011. "Monetary Policy in Estimated Models of Small Open and Closed Economies," Open Economies Review, Springer, vol. 22(5), pages 769-796, November.
  2. Juan José Echavarría Soto & Enrique López Enciso & Martha Misas Arango & Juana Téllez Corredor- Juan Carlos Parra Álvarez, 2007. "La Tasa De Interés Natural En Colombia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  3. Ali Dib & Ian Christensen, 2005. "Monetary Policy in an Estimated DSGE Model with a Financial Accelerator," Computing in Economics and Finance 2005 314, Society for Computational Economics.
  4. Atta-Mensah, Joseph & Dib, Ali, 2008. "Bank lending, credit shocks, and the transmission of Canadian monetary policy," International Review of Economics & Finance, Elsevier, vol. 17(1), pages 159-176.
  5. Jonsson, Magnus & Palmqvist, Stefan, 2004. "Do Higher Wages Cause Inflation?," Working Paper Series 159, Sveriges Riksbank (Central Bank of Sweden).

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