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How Monetary Policy is made: Two Canadian Tales

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  • Pierre L. Siklos
  • Matthias Neuenkirch

Abstract

We examine policy rate recommendations of the Bank of Canada’s Governing Council (GC) and its shadow, the C.D. Howe Institute’s Monetary Policy Council (MPC). Individual recommendations of the MPC are observed but not those of the GC. Differences in the two committee’s recommendations are small but persistent. The MPC is more responsive to the output gap than its GC counterpart. Both committees respond similarly to inflation. Disagreement within the MPC and with the GC is more likely when rates are rising. Finally, the Bank’s forward guidance had a significant influence on the MPC’s views about the future inflation path.

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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2014-53.

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Length: 45 pages
Date of creation: Jul 2014
Date of revision:
Handle: RePEc:een:camaaa:2014-53

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References

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  1. Richard Clarida, 2001. "The Empirics of Monetary Policy Rules in Open Economies," NBER Working Papers 8603, National Bureau of Economic Research, Inc.
  2. Matthias Neuenkirch & Pierre L. Siklos, 2013. "What's in a Second Opinion? Shadowing the ECB and the Bank of England," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2013-46, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Pierre L. Siklos, 2003. "Assessing the Impact of Changes in Transparency and Accountability at the Bank of Canada," Canadian Public Policy, University of Toronto Press, University of Toronto Press, vol. 29(3), pages 279-299, September.
  4. Ellen E. Meade & David Stasavage, 2004. "Publicity of Debate and the Incentive to Dissent: Evidence from the US Federal Reserve," CEP Discussion Papers, Centre for Economic Performance, LSE dp0608, Centre for Economic Performance, LSE.
  5. Fujiki, Hiroshi, 2005. "The Monetary Policy Committee and the Incentive Problem: A Selective Survey," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(S1), pages 37-82, October.
  6. Richard H. Clarida, 2012. "What Has—and Has Not—Been Learned about Monetary Policy in a Low‐Inflation Environment? A Review of the 2000s," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 44, pages 123-140, 02.
  7. Matthias Neuenkirch, 2013. "Predicting Bank of England’s Asset Purchase Decisions with MPC Voting Records," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201322, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  8. John B. Taylor, 2007. "Housing and Monetary Policy," NBER Working Papers 13682, National Bureau of Economic Research, Inc.
  9. Andersson, Malin & Dillen, Hans & Sellin, Peter, 2006. "Monetary policy signaling and movements in the term structure of interest rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(8), pages 1815-1855, November.
  10. Michael Parkin, 2009. "What is the Ideal Monetary Policy Regime? Improving the Bank of Canada's Inflation-targeting Program," C.D. Howe Institute Commentary, C.D. Howe Institute, C.D. Howe Institute, issue 279, January.
  11. Michael Parkin, 2011. "Overnight Moves: The Bank of Canada Should Start to Raise Interest Rates Now," C.D. Howe Institute Backgrounder, C.D. Howe Institute, C.D. Howe Institute, issue 139, July.
  12. Job Swank & Otto H. Swank & Bauke Visser, 2008. "How Committees of Experts Interact with the Outside World: Some Theory, and Evidence from the FOMC," Journal of the European Economic Association, MIT Press, MIT Press, vol. 6(2-3), pages 478-486, 04-05.
  13. Pierre L. Siklos, 2009. "As Good As It Gets? The International Dimension to Canada's Monetary Policy Strategy Choices," C.D. Howe Institute Commentary, C.D. Howe Institute, C.D. Howe Institute, issue 292, July.
  14. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, Econometric Society, vol. 48(4), pages 817-38, May.
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Cited by:
  1. M. Neuenkirch, P. Siklos, 2014. "When Is Lift-Off? Evaluating Forward Guidance From The Shadow," LCERPA Working Papers, Laurier Centre for Economic Research and Policy Analysis wm0066, Laurier Centre for Economic Research and Policy Analysis.

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