E3 - Prices, Business Fluctuations, and Cycles

• Monetary Policy in a Volatile World: ToTEM Simulations

  Staff analytical paper 2026-27 Edward Booth, Edouard Djeutem, Oleksiy Kryvtsov, Fanny McKellips, Yang Zhang

  Using simulations of the Bank of Canada’s projection model, we assess inflation risks from greater supply-shock volatility and show that monetary policy faces sharper trade-offs, as stabilizing inflation increasingly comes at the cost of weaker real activity.

  Content Type(s): Staff research, Staff analytical paper JEL Code(s): E, E3, E31, E32, E5, E52, E58 Research Theme(s): Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission