June 21, 2006
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370
result(s)
June 11, 2006
Evaluating Measures of Core Inflation
Since the Bank of Canada adopted inflation targeting in 1991, it has focused on a measure of core inflation as a shorter-term guide for monetary policy. When the targets were renewed in 2001, the Bank adopted CPIX as its measure of core inflation because of the advantages it offered. Leflèche and Armour review the experience with CPIX and whether the criteria used to select it in 2001 still favour the measure today. They describe the various measures of core inflation monitored by the Bank and evaluate them on the basis of the volatility of the components, the volatility of the core measures themselves, absence of bias relative to total CPI, predictive power, and certain practical criteria, including timeliness and credibility. They conclude that CPIX still satisfies all the empirical and practical criteria.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Inflation and prices,
Inflation targets,
Monetary policy framework
June 2, 2006
Another Look at the Inflation-Target Horizon
The conduct of monetary policy within an inflation-targeting framework requires the establishment of an inflation-target horizon, which is the average time it takes inflation to return to the target. Policy-makers have an interest in communicating this horizon, since it is likely to help anchor inflation expectations. This article focuses on the determination of the appropriate policy horizon by reporting on two recent Bank of Canada studies. The evidence suggests that the current target horizon of six to eight quarters remains appropriate. It is important to note that the duration of the optimal inflation-target horizon varies widely, depending on the combination of shocks to the economy. In rare cases when the financial accelerator is triggered by a persistent shock, such as an asset-price bubble, it may be appropriate to take a longer view of the inflation-target horizon.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Inflation targets,
Monetary policy framework,
Monetary policy transmission
LVTS, the Overnight Market, and Monetary Policy
Staff Working Paper 2006-15
Nadja Kamhi
Operational events in the Large Value Transfer System (LVTS) almost always result in a disturbance of the regular flow of payments.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Monetary policy implementation,
Payment clearing and settlement systems
JEL Code(s):
E,
E5
April 15, 2006
Issues in Inflation Targeting: A Summary of the Bank of Canada Conference Held 28-29 April 2005
The Bank of Canada's 2005 conference focused on two critical issues: price-level targets versus inflation targets, and the appropriate level of inflation. Session topics included new methodological approaches to examining the validity of the New Keynesian Phillips curve for Canada; the monetary policy implications of border effects and the financial-accelerator model; the zero lower bound on nominal interest rates; and inflation and welfare in general-equilibrium macroeconomic models. A panel of invited speakers discussed the issues of each session, and two distinguished speakers gave their perspectives on inflation.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Inflation and prices,
Inflation targets,
Monetary policy framework
Guarding Against Large Policy Errors under Model Uncertainty
Staff Working Paper 2006-13
Gino Cateau
How can policy-makers avoid large policy errors when they are uncertain about the true model of the economy?
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Monetary policy and uncertainty
JEL Code(s):
D,
D8,
D81,
E,
E5,
E58
The Federal Reserve's Dual Mandate: A Time-Varying Monetary Policy Priority Index for the United States
Staff Working Paper 2006-11
René Lalonde,
Nicolas Parent
In the United States, the Federal Reserve has a dual mandate of promoting stable inflation and maximum employment. Since the Fed directly controls only one instrument - the federal funds rate - the authors argue that the Fed's priorities continuously alternate between inflation and economic activity.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Econometric and statistical methods,
Monetary policy framework,
Monetary policy implementation
JEL Code(s):
C,
C2,
C22,
C5,
C52,
E,
E5,
E52
Are Currency Crises Low-State Equilibria? An Empirical, Three-Interest-Rate Model
Staff Working Paper 2006-5
Christopher Cornell,
Raphael Solomon
Suppose that the dynamics of the macroeconomy were given by (partly) random fluctuations between two equilibria: "good" and "bad."
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Monetary policy and uncertainty
JEL Code(s):
C,
C6,
C62,
E,
E5,
E59,
F,
F4,
F41
December 22, 2005
70 Years of Central Banking: The Bank of Canada in an International Context, 1935–2005
Bordo and Redish examine the evolution of central banking over the past 70 years and identify periods where Canada was either a notable innovator with regard to central banking practices or appeared to be following a slightly different course. They note that global forces seemed to play an important role in determining inflation outcomes throughout the 70-year period, and that Canada and the United States experienced roughly similar inflation rates despite some important differences in their monetary policy regimes. Canada, for example, was comparatively late in establishing a central bank, launching the Bank of Canada long after most other industrial countries had one. Canada also operated under a flexible exchange rate through much of the Bretton Woods period, unlike any other country in the 1950s and early 1960s; adopted inflation targets well before most other central banks; and introduced a number of other innovative changes with regard to the implementation of monetary policy in the 1990s.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Exchange rates,
Inflation and prices,
Monetary policy framework
December 18, 2005
Free Banking and the Bank of Canada
Economists in the nineteenth century spent considerable time discussing the merits of a free-banking system, in which each commercial bank would be able to issue its own notes and deposits, subject to a convertibility requirement backed by its own gold reserves. Such a system, the proponents argued, would be able to deliver price-level stability yet be flexible enough to withstand the vicissitudes of the business cycle. Moreover, there would be no need for central banks. While this idea has received less attention in recent years, some economists still put it forward as a practical alternative to the current system. Laidler suggests that the centralizing tendencies in banking would inevitably undermine competition within a free-banking system, and lead to the natural emergence of one dominant bank. Other developments in the twentieth century, most notably the demise of the gold standard and widespread agreement that governments should play a determining role in setting monetary policy goals, have also limited the practicality of such a system. Laidler examines the Bank of Canada's history from the free-banking perspective and concludes that the current system of inflation targeting provides a much better anchor for orderly price-level behaviour than the free-banking system's convertibility could ever guarantee.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Monetary policy framework