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A Simple Test of Simple Rules: Can They Improve How Monetary Policy is Implemented with Inflation Targets?

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  • Nicholas Rowe
  • David Tulk

Abstract

The authors evaluate whether an assortment of simple rules could improve how the Bank of Canada implements its inflation-targeting monetary policy. They focus on measuring the correlation between the deviations of inflation from the target and the lagged deviations of rule recommendations from the actual policy interest rate. This empirical procedure evaluates the rules in a model-free environment and uses historical data over the Bank’s inflation-targeting regime. The authors find that the Bank would not improve its policy of targeting inflation by paying more attention to the advice provided by these rules.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 03-31.

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Length: 26 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:bca:bocawp:03-31

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  1. Andrew Levin & Volker Wieland & John C. Williams, 1998. "Robustness of Simple Monetary Policy Rules under Model Uncertainty," NBER Working Papers 6570, National Bureau of Economic Research, Inc.
  2. Maral Kichian, 2001. "On the Nature and the Stability of the Canadian Phillips Curve," Working Papers 01-4, Bank of Canada.
  3. Laurence Ball, 1998. "Policy Rules for Open Economies," RBA Research Discussion Papers rdp9806, Reserve Bank of Australia.
  4. Jamie Armour & Ben Fung & Dinah Maclean, 2002. "Taylor Rules in the Quarterly Projection Model," Working Papers 02-1, Bank of Canada.
  5. Stephen Murchison, . "NAOMI A New Quarterly Forecasting Model Part II: A Guide to Canadian NAOMI," Working Papers-Department of Finance Canada 2001-25, Department of Finance Canada.
  6. Ann-Charlotte Eliasson & Peter Isard & Douglas Laxton, 1999. "Simple Monetary Policy Rules Under Model Uncertainty," IMF Working Papers 99/75, International Monetary Fund.
  7. Nicholas Rowe, 2002. "How to Improve Inflation Targeting at the Bank of Canada," Working Papers 02-23, Bank of Canada.
  8. Denise Côté & John Kuszczak & Jean-Paul Lam & Ying Liu & Pierre St-Amant, 2002. "The Performance and Robustness of Simple Monetary Policy Rules in Models of the Canadian Economy," Technical Reports 92, Bank of Canada.
  9. Tiff Macklem, 2002. "Information and Analysis for Monetary Policy: Coming to a Decision," Bank of Canada Review, Bank of Canada, vol. 2002(Summer), pages 11-18.
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Cited by:
  1. Andrés Felipe Giraldo palomino, 2007. "Aversión a la inflación y regla de Taylor en Colombia 1994-2005," DOCUMENTOS DE ECONOMÍA 003947, UNIVERSIDAD JAVERIANA - BOGOTÁ.

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