Monetary rules when economic behaviour changes
This paper examines the implications of changes in economic behaviour for simple inflation-forecastbased monetary rules of the type currently used at two inflation-targeting central banks. Three types of changes in economic behaviour are considered, changes that are motivated by developments in monetary and fiscal policy in the 1990s: changes in monetary policy credibility, changes in the slope of the Phillips curve, and changes in the degree of income stabilization from automatic fiscal transfers. Analysis is conducted using stochastic simulations of a model of the Canadian economy. Two questions are posed: First, what are the implications of these types of changes in economic behaviour for the stochastic properties of the economy? Second, how are efficient inflation-forecastbased rules affected by these changes in behaviour? Perhaps the most interesting results are with respect to credibility. When monetary credibility increases, the central bank can attain more stable output and inflation. But increasing credibility is a double-edged sword. To reap its benefits, the central bank must, in general, adjust its reaction function. If it does not, volatility can increase. Les auteurs examinent les conséquences des changements de comportement des agents économiques pour l'application de règles monétaires simples reposant sur la prévision de l'inflation, du genre de celles actuellement utilisées par deux banques centrales ayant établi des cibles en matière d'inflation. Ils analysent trois types de changement de comportement causés par l'évolution des politiques monétaire et budgétaire depuis le début des années 1990 : les changements de crédibilité de la politique monétaire, les variations de la pente de la courbe de Phillips et les modifications du degré de stabilisation automatique des revenus assuré par les paiements de transfert et les rentrées fiscales. L'analyse des auteurs se fonde sur l'exécution de simulations stochastiques au moyen d'un modèle de l'économie c
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Volume (Year): (1998)
Issue (Month): Mar ()
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