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How Monetary Policy is Made: Two Canadian Tales

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  • Matthias Neuenkirch

    () (University of Aachen)

  • Pierre Siklos

    (Wilfrid Laurier University)

Abstract

This paper examines the policy rate recommendations of the Bank of Canada's Governing Council (GC) and the C.D. Howe Institute's Monetary Policy Council (MPC)since 2003. We find, first, that differences in the median recommendations between the MPC and the GC are persistent but small (i.e., 25 bps). The median MPC recommendation is based on a higher steady state real interest rate. However, the response of the MPC and the GC to output and inflation shocks are, for the most part, comparable. Second, we are also able to examine the individual recommendations for the MPC. Estimates of the determinants of consensus inside the MPC or disagreement with the GC yield some useful insights. For example, disagreements are more likely when rates are proposed to rise than at other times. Equally interesting is the finding that the Bank of Canada conditional commitment on the overnightrate in 2009-10 has a relatively larger restricting impact on the MPC's median recommendation than the GC'starget rate.

Suggested Citation

  • Matthias Neuenkirch & Pierre Siklos, 2013. "How Monetary Policy is Made: Two Canadian Tales," MAGKS Papers on Economics 201341, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:201341
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    File URL: https://www.uni-marburg.de/fb02/makro/forschung/magkspapers/41-2013_siklos.pdf
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    References listed on IDEAS

    as
    1. Neuenkirch, Matthias & Siklos, Pierre L., 2013. "What's in a second opinion? Shadowing the ECB and the Bank of England," European Journal of Political Economy, Elsevier, vol. 32(C), pages 135-148.
    2. 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, issue 292, July.
    3. John B. Taylor, 2007. "Housing and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 463-476.
    4. Pier Francesco Asso & George A. Kahn & Robert Leeson, 2010. "The Taylor rule and the practice of central banking," Research Working Paper RWP 10-05, Federal Reserve Bank of Kansas City.
    5. Clarida, Richard H, 2001. "The Empirics of Monetary Policy Rules in Open Economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 315-323, October.
    6. 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, issue 139, July.
    7. 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, vol. 29(3), pages 279-299, September.
    8. EllenE. Meade & David Stasavage, 2008. "Publicity of Debate and the Incentive to Dissent: Evidence from the US Federal Reserve," Economic Journal, Royal Economic Society, vol. 118(528), pages 695-717, April.
    9. Matthias Neuenkirch, 2013. "Predicting Bank of England's asset purchase decisions with MPC voting records," Applied Economics Letters, Taylor & Francis Journals, vol. 20(13), pages 1275-1278, September.
    10. Matthias Neuenkirch & Pierre Siklos, 2014. "When is Lift-Off? Evaluating Forward Guidance from the Shadow," Open Economies Review, Springer, vol. 25(5), pages 819-839, November.
    11. 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, vol. 23(S1), pages 37-82, October.
    12. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    13. Andersson, Malin & Dillen, Hans & Sellin, Peter, 2006. "Monetary policy signaling and movements in the term structure of interest rates," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1815-1855, November.
    14. 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, issue 279, January.
    15. 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, vol. 44, pages 123-140, February.
    16. 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, vol. 6(2-3), pages 478-486, 04-05.
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    Cited by:

    1. Matthias Neuenkirch & Pierre Siklos, 2014. "When is Lift-Off? Evaluating Forward Guidance from the Shadow," Open Economies Review, Springer, vol. 25(5), pages 819-839, November.
    2. Sylvester Eijffinger & Ronald Mahieu & Louis Raes, 2016. "Monetary Policy Committees, Voting Behavior and Ideal Points," BAFFI CAREFIN Working Papers 1628, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

    More about this item

    Keywords

    Bank of Canada; central bank communication; committee behaviour; monetary policy committees; shadow councils; Taylorrules.;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other

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