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Wicksell at the Bank of Canada

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Author Info
Kevin Clinton () (Queen's University)

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Abstract

Wicksell, writing around the start of the 20th century, outlined an approach to monetary policy strikingly similar to the modern approach, of which the Bank of Canada has been a pioneer. Its features include: the overriding objective of price stability (or low inflation); an interest rate instrument controlled by the rates on settlement balances at the central bank; and a policy rule under which the instrument varies in response to deviations from the objective. Wicksell’s natural rate of interest has resurfaced as the neutral rate in mainstream macroeconomic models; and his description of the inflation process has parallels in the modern Phillips curve. Moreover, in a mandate for price stability, one can find a logical basis for the independence and accountability of central banks. The paper tries to explain why Wicksell’s ideas fell by the wayside for a century, and describes how the Bank of Canada, by pragmatic steps in the 1990s, helped reinvent Wicksell, and install a neo-Wicksellian monetary policy.

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File URL: http://www.econ.queensu.ca/working_papers/papers/qed_wp_1087.pdf
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Publisher Info
Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1087.

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Length: 22 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:qed:wpaper:1087

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Related research
Keywords: Wicksell central bank monetary policy Bank of Canada

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Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Tiff Macklem, 2001. "A New Measure of Core Inflation," Bank of Canada Review, Bank of Canada, vol. 2001(Autumn), pages 3-12. [Downloadable!]
  2. 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. [Downloadable!] (restricted)
  3. Allan Crawford, 1998. "Measurement biases in the Canadian CPI: An update," Bank of Canada Review, Bank of Canada, vol. 1998(Spring), pages 39-56. [Downloadable!]
  4. David Longworth, 2003. "Money in the Bank (of Canada)," Technical Reports 93, Bank of Canada. [Downloadable!]
  5. Charles Freedman, 1996. "What operating procedures should be adopted to maintain price stability? practical issues," Proceedings, Federal Reserve Bank of Kansas City, pages 241-285. [Downloadable!]
  6. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April. [Downloadable!] (restricted)
  7. Thomas M. Humphrey, 1997. "Fisher and Wicksell on the quantity theory," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 71-90. [Downloadable!]
  8. Donna Howard, 1998. "A primer on the implementation of monetary policy in the LVTS environment," Bank of Canada Review, Bank of Canada, vol. 1998(Autumn), pages 57-66. [Downloadable!]
  9. Laidler, David, 1972. "On Wicksell's Theory of Price Level Dynamics," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 40(2), pages 125-44, June.
  10. Jamie Armour & Ben Fung & Dinah Maclean, 2002. "Taylor Rules in the Quarterly Projection Model," Working Papers 02-1, Bank of Canada. [Downloadable!]
  11. Olivier Blanchard & Jordi Gali, 2005. "Real Wage Rigidities and the New Keynesian Model," NBER Working Papers 11806, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Dodge, David, 2002. "Inflation targeting in Canada: Experience and lessons," The North American Journal of Economics and Finance, Elsevier, vol. 13(2), pages 113-124, August. [Downloadable!] (restricted)
  13. Barry Cozier & Greg Tkacz, 1994. "The Term Structure and Real Activity in Canada," Macroeconomics 9406001, EconWPA, revised 23 Jun 1994. [Downloadable!]
    Other versions:
  14. Marvin Goodfriend & Robert G. King, 1998. "The new neoclassical synthesis and the role of monetary policy," Working Paper 98-05, Federal Reserve Bank of Richmond. [Downloadable!]
  15. Acheson, Keith & Chant, John F, 1973. "Bureaucratic Theory and the Choice of Central Bank Goals," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(2), pages 637-55, May. [Downloadable!] (restricted)
  16. Denise Côté & Jean-Paul Lam & Ying Liu & Pierre St-Amant, 2002. "The Role of Simple Rules in the Conduct of Canadian Monetary Policy," Bank of Canada Review, Bank of Canada, vol. 2002(Spring), pages 27-35. [Downloadable!]
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