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An Optimized Monetary Policy Rule for ToTEM

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Author Info

  • Jean-Philippe Cayen
  • Amy Corbett
  • Patrick Perrier
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    Abstract

    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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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp06-41.pdf
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    Bibliographic Info

    Paper provided by Bank of Canada in its series Working Papers with number 06-41.

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    Length: 34 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:bca:bocawp:06-41

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    Phone: 613 782-8845
    Fax: 613 782-8874
    Web page: http://www.bank-banque-canada.ca/

    Related research

    Keywords: Economic models; Monetary policy framework; Transmission of monetary policy;

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    Cited by:
    1. Meenakshi Basant Roi & Rhys R. Mendes, 2007. "Should Central Banks Adjust Their Target Horizons in Response to House-Price Bubbles?," Discussion Papers 07-4, Bank of Canada.
    2. Rene Lalonde & Dirk Muir, 2007. "The Bank of Canada's Version of the Global Economy Model (BoC-GEM)," Technical Reports 98, Bank of Canada.
    3. Hakan, Yilmazkuday, 2009. "Is there a Role for International Trade Costs in Explaining the Central Bank Behavior?," MPRA Paper 15951, University Library of Munich, Germany.
    4. Claude Lavoie & Hope Pioro, 2007. "The Zero Bound on Nominal Interest Rates: Implications for the Optimal Monetary Policy in Canada," Discussion Papers 07-1, Bank of Canada.

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