A Simple Test of Simple Rules: Can They Improve How Monetary Policy is Implemented with Inflation Targets?
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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- Peter Isard & Douglas Laxton & Ann-Charlotte Eliasson, 1999.
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