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A Simple Test of Simple Rules: Can They Improve How Monetary Policy is Implemented with Inflation Targets?

  • Nicholas Rowe
  • David Tulk

The authors evaluate whether an assortment of simple rules could improve how the Bank of Canada implements its inflation-targeting monetary policy. They focus on measuring the correlation between the deviations of inflation from the target and the lagged deviations of rule recommendations from the actual policy interest rate. This empirical procedure evaluates the rules in a model-free environment and uses historical data over the Bank’s inflation-targeting regime. The authors find that the Bank would not improve its policy of targeting inflation by paying more attention to the advice provided by these rules.

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Paper provided by Bank of Canada in its series Working Papers with number 03-31.

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Length: 26 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:bca:bocawp:03-31
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  1. Maral Kichian, 2001. "On the Nature and the Stability of the Canadian Phillips Curve," Working Papers 01-4, Bank of Canada.
  2. Tiff Macklem, 2002. "Information and Analysis for Monetary Policy: Coming to a Decision," Bank of Canada Review, Bank of Canada, vol. 2002(Summer), pages 11-18.
  3. Peter Isard & Douglas Laxton & Ann-Charlotte Eliasson, 1999. "Simple Monetary Policy Rules Under Model Uncertainty," Computing in Economics and Finance 1999 841, Society for Computational Economics.
  4. Andrew T.. Levin & Volker Wieland & John Williams, 1999. "Robustness of Simple Monetary Policy Rules under Model Uncertainty," NBER Chapters, in: Monetary Policy Rules, pages 263-318 National Bureau of Economic Research, Inc.
  5. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc.
  6. Stephen Murchison, . "NAOMI A New Quarterly Forecasting Model Part II: A Guide to Canadian NAOMI," Working Papers-Department of Finance Canada 2001-25, Department of Finance Canada.
  7. Denise Côté & John Kuszczak & Jean-Paul Lam & Ying Liu & Pierre St-Amant, 2004. "The performance and robustness of simple monetary policy rules in models of the Canadian economy," Canadian Journal of Economics, Canadian Economics Association, vol. 37(4), pages 978-998, November.
  8. Nicholas Rowe, 2002. "How to Improve Inflation Targeting at the Bank of Canada," Working Papers 02-23, Bank of Canada.
  9. Jamie Armour & Ben Fung & Dinah Maclean, 2002. "Taylor Rules in the Quarterly Projection Model," Working Papers 02-1, Bank of Canada.
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