October 20, 2006 Staff projections provided for the Bank of Canada's monetary policy decision process take into account the integration of Canada's very open economy within the global economy, as well as its close real and financial linkages with the United States. To provide inputs for this projection, the Bank has developed several models, including MUSE, NEUQ (the New European Quarterly Model), and BoC-GEM (Bank of Canada Global Economy Model), to analyze and forecast economic developments in the rest of the world. The authors focus on MUSE, the model currently used to describe interaction among the principal U.S. economic variables, including gross domestic product, inflation, interest rates, and the exchange rate. Brief descriptions are also provided of NEUQ and BoC-GEM.
The Federal Reserve's Dual Mandate: A Time-Varying Monetary Policy Priority Index for the United StatesIn 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.