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Uncertainty and Multiple Paradigms of the Transmission Mechanism

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  • Engert, Walter
  • Selody, Jack
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    Abstract

    An important challenge facing central banks is making decisions under uncertainty about the dynamic effects of monetary policy actions. The authors stress the importance of explicitly recognizing uncertainty about the transmission mechanism when formulating policy advice. They argue that one way to manage monetary policy under uncertainty is to draw on both an output-gap paradigm and a money paradigm of the transmission mechanism to inform decision-making. Taking an eclectic, diversified approach to guide policy judgements could improve the policy outcome.

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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/05/wp98-7.pdf
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    Bibliographic Info

    Paper provided by Bank of Canada in its series Working Papers with number 98-7.

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    Length: 32 pages
    Date of creation: 1998
    Date of revision:
    Handle: RePEc:bca:bocawp:98-7

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    Related research

    Keywords: Monetary policy framework; Uncertainty and monetary policy;

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    References

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    1. Duguay, Pierre, 1994. "Empirical evidence on the strength of the monetary transmission mechanism in Canada: An aggregate approach," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 39-61, February.
    2. Laidler, D., 1988. "Taking Money Seriously," UWO Department of Economics Working Papers 8804, University of Western Ontario, Department of Economics.
    3. Engert, Walter & Hendry, Scott, 1998. "Forecasting Inflation with the M1-VECM: Part Two," Working Papers 98-6, Bank of Canada.
    4. Fung, Ben Siu-cheong & Kasumovich, Marcel, 1998. "Monetary shocks in the G-6 countries: Is there a puzzle?," Journal of Monetary Economics, Elsevier, vol. 42(3), pages 575-592, October.
    5. Bennett T. McCallum, 1996. "Inflation Targeting in Canada, New Zealand, Sweden, the United Kingdom, and in General," NBER Working Papers 5579, National Bureau of Economic Research, Inc.
    6. Charles Freedman, 1995. "The role of monetary conditions and the monetary conditions index in the conduct of policy [speech]," Bank of Canada Review, Bank of Canada, vol. 1995(Autumn), pages 53-59.
    7. St-Amant, P. & van Norden, S., 1997. "Measurement of the Output Gap: A Discussion of Recent Research at the Bank of Canada," Technical Reports 79, Bank of Canada.
    8. Scott Hendry, 1995. "Long-Run Demand for M1," Macroeconomics 9511001, EconWPA.
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    Cited by:
    1. Arnulfo Rodriguez & Pedro N. Rodriguez, 2006. "Recursive Thick Modeling and the Choice of Monetary Policy in Mexico," Computing in Economics and Finance 2006 30, Society for Computational Economics.
    2. Laidler, David, 1999. "The Quantity of Money and Monetary Policy," Working Papers 99-5, Bank of Canada.
    3. Arnulfo Rodríguez & Pedro N. Rodríguez, 2007. "Recursive Thick Modeling and the Choice of Monetary Policy in Mexico," Working Papers 2007-04, Banco de México.
    4. Nicoletti-Altimari, Sergio, 2001. "Does money lead inflation in the euro area?," Working Paper Series 0063, European Central Bank.
    5. Christopher Ragan, 2005. "The Exchange Rate and Canadian Inflation Targeting," Working Papers 05-34, Bank of Canada.
    6. Gino Cateau, 2006. "Guarding Against Large Policy Errors under Model Uncertainty," Working Papers 06-13, Bank of Canada.
    7. Eugenio Domingo Solans, 2000. "How should monetary policymakers respond to the new challenges of global economic integration? : commentary," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 277-287.

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