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The Monetary Policy Transmission Mechanism and Policy Rules in Canada

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  • David Longworth
  • Brian O’Reilly

Abstract

The inflation-targeting regime in place in Canada requires a clear understanding of the monetary policy transmission mechanism and a way to exploit knowledge of that mechanism in taking policy decisions. This paper discusses the Bank of Canada’s current view of the monetary policy transmission mechanism in Canada and the internal research on which it is based, as well as some of the Bank’s research on policy rules. The main objectives in the research on various elements of the monetary policy framework at the Bank of Canada is to find practical ways of addressing the major types of uncertainty in formulating monetary policy. Uncertainty has become particularly important as a research and practical issue in recent years with the shift in focus to how to conduct monetary policy in a low and stable inflation environment. The concluding section outlines three steps that experience and research has led staff at the Bank of Canada to identify as helpful to policy makers in dealing with uncertainty and providing a sharper focus to discussions at key meetings on monetary policy.

Suggested Citation

  • David Longworth & Brian O’Reilly, 2000. "The Monetary Policy Transmission Mechanism and Policy Rules in Canada," Working Papers Central Bank of Chile 72, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:72
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_72.pdf
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    Cited by:

    1. Baxa, Jaromír & Horváth, Roman & Vašíček, Bořek, 2014. "How Does Monetary Policy Change? Evidence On Inflation-Targeting Countries," Macroeconomic Dynamics, Cambridge University Press, vol. 18(3), pages 593-630, April.
    2. Bennett T. McCallum & Edward Nelson, 2005. "Targeting versus instrument rules for monetary policy," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 225-245.
    3. Frank Smets, 1997. "Financial-asset Prices and Monetary Policy: Theory and Evidence," RBA Annual Conference Volume (Discontinued), in: Philip Lowe (ed.),Monetary Policy and Inflation Targeting, Reserve Bank of Australia.
    4. Grande, Giuseppe, 1997. "Properties of the monetary conditions index," MPRA Paper 23515, University Library of Munich, Germany.

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