We study optimal monetary policy in an analytically tractable Heterogeneous Agent New Keynesian model. In the model, the central bank has an incentive to reduce consumption inequality in addition to keeping economic activity at its efficient level and inflation stable.
I propose a novel method to identify and estimate the macroeconomic effects of forward guidance and large-scale asset purchases (LSAP) for each FOMC announcement. I find that LSAP is more important than forward guidance in influencing output and inflation. LSAP puts upward pressure on short-term yields, so it should always be used in conjunction with forward guidance.
Addressing climate change is a global challenge. While the Government of Canada has the primary responsibility for climate change policy, the Bank of Canada recognizes the importance of including climate change considerations in its work to promote the economic and financial welfare of Canadians.
This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.
As previously announced, the Bank of Canada (the Bank) launched on April 1, 2020 a program to purchase Government of Canada securities in the secondary market – the Government Bond Purchase Program (GBPP).
In a laboratory experiment, we ask participants to predict inflation using three different policy regimes: inflation targeting—with and without greater communication of the target—average inflation targeting and price level targeting. We use participants’ predictions to compare the level and stability of inflation under each regime.