Stephen Murchison - Latest

• November 13, 2014

  Should Forward Guidance Be Backward-Looking?

  Bank of Canada Review - Autumn 2014 Rhys R. Mendes, Stephen Murchison

  When constrained by the zero lower bound, some central banks have communicated a threshold that must be met before short-term interest rates would be permitted to rise. Simulation results for Canada show that forward guidance that is conditional on achieving a price-level threshold can theoretically raise demand and inflation expectations by significantly more than unemployment thresholds. This superior performance is attributable to the fact that the price-level threshold depends on past inflation outcomes. In practice, however, history-dependent thresholds such as this might be more challenging for central banks to communicate.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Business fluctuations and cycles, Monetary policy framework JEL Code(s): E, E5, E52, E58
• August 19, 2010

  Price-Level Targeting and Relative-Price Shocks

  Bank of Canada Review - Summer 2010 Stephen Murchison

  Stephen Murchison reviews the findings of recent Bank of Canada research on the relative merits of inflation targeting and price-level targeting (PLT) for a small open economy, such as Canada's, that is susceptible to large and persistent terms-of-trade shocks.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Central bank research, Inflation targets, Monetary policy framework
• March 9, 2010

  Monetary Policy Rules in an Uncertain Environment

  Bank of Canada Review - Spring 2010 Gino Cateau, Stephen Murchison

  This article examines recent research on the influence of various forms of economic uncertainty on the performance of different classes of monetary policy rules: from simple rules to fully optimal monetary policy under commitment. The authors explain why uncertainty matters in the design of monetary policy rules and provide quantitative examples from the recent literature. They also present results for several policy rules in ToTEM, the Bank of Canada's main model for projection and analysis, including rules that respond to price level, rather than to inflation.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Econometric and statistical methods, Economic models, Monetary policy and uncertainty, Monetary policy framework
• November 11, 2009

  Declining Inflation Persistence in Canada: Causes and Consequences

  Bank of Canada Review - Winter 2009-2010 Rhys R. Mendes, Stephen Murchison

  The persistence of both core and total consumer price index inflation in Canada has declined significantly since the 1980s. In addition to providing up-to-date estimates of inflation persistence, this article examines possible reasons for the decline suggested in the literature. The role played by monetary policy, through its effect on price- and wage-setting behaviour, is distinguished from possible changes to the structure of the economy that are independent of monetary policy. The authors also discuss the implications for monetary policy of low structural persistence in inflation, including the choice of an inflation-targeting regime versus a price-level-targeting regime.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation and prices, Monetary policy framework
• December 11, 2007

  The Zero Bound on Nominal Interest Rates: Implications for Monetary Policy

  Bank of Canada Review - Winter 2007-2008 Claude Lavoie, Stephen Murchison

  One of the most important factors that must be considered if countries are thinking about lowering the target level of inflation much below 2 per cent is the zero interest bound. Targeting inflation rates that are too low, the authors note, may restrict the ability of monetary policy to respond to economic shocks by limiting the amount by which interest rates can be eased.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation: costs and benefits, Interest rates, Monetary policy implementation
• October 22, 2006

  ToTEM: The Bank of Canada's New Projection and Policy-Analysis Model

  Bank of Canada Review - Autumn 2006 Paul Fenton, Stephen Murchison

  The Terms-of-Trade Economic Model, or ToTEM, replaced the Quarterly Projection Model (QPM) in December 2005 as the Bank's principal projection and policy-analysis model for the Canadian economy. Benefiting from advances in economic modelling and computer power, ToTEM builds on the strengths of QPM, allowing for optimizing behaviour on the part of firms and households, both in and out of steady state, in a multi-product environment. The authors explain the motivation behind the development of ToTEM, provide an overview of the model and its calibration, and present several simulations to illustrate its key properties, concluding with some indications of how the model is expected to evolve going forward.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Business fluctuations and cycles, Economic models
• August 19, 2002

  Models in Policy-Making

  Bank of Canada Review - Summer 2002 Donald Coletti, Stephen Murchison

  This article examines another strategy in the Bank's approach to dealing with an uncertain world: the use of carefully articulated models to produce economic forecasts and to examine the implications of the various risks to those forecasts. Economic models are deliberate simplifications of a complex world that allow economists to make predictions that are reasonably accurate and that can be easily understood and communicated. By using several models, based on competing paradigms, the Bank minimizes policy errors that could result from relying on one view of the world and one philosophy of model design. The authors review some of the models currently used at the Bank, as well as the role of judgment in the projection process.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Economic models