The authors propose a monetary policy rule for the Terms-of-Trade Economic Model (ToTEM), the Bank of Canada's new projection and policy-analysis model for the Canadian economy. They consider simple instrument rules such as Taylor-type and inflation-forecast-based rules. The proposed rule minimizes a loss function that reflects the assumed preferences of the monetary authority over inflation and output, as well as over the variability of its instrument. The authors also investigate how robust the proposed rule is with respect to a particular realization of shocks that differs from the historical distribution used to find the optimized rule.
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Paper provided by Bank of Canada in its series Working Papers with number
06-41.
Find related papers by JEL classification: E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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