Staff Analytical Notes
In light of the financial crisis and its aftermath, several economists have argued that inflation-targeting central banks should reconsider the level of their inflation targets. While the appropriate level for the inflation target remains an open question, it’s important to note that any transition to a new target would entail certain costs.
What path should policy-makers select for the nominal rate when faced with a liquidity trap during which the effective lower bound binds?
Conventional models imply that central banks aiming to raise inflation should lower nominal rates and thus stimulate aggregate demand. However, several economists have recently challenged this conventional wisdom in favour of an alternative “neo-Fisherian’’ view under which higher nominal rates might in fact lead to higher inflation.
Staff Working Papers
We add downward nominal wage rigidity to a standard New Keynesian model with sticky prices and wages, where the zero lower bound on nominal interest rates is allowed to bind. We find that wage rigidity not only reduces the frequency of zero bound episodes but also mitigates the severity of corresponding recessions.
The long-run relation between growth and inflation has not yet been studied in the context of nominal price and wage rigidities, despite the fact that these rigidities now figure prominently in workhorse macroeconomic models.
In this paper, we use an economics decision-making experiment to test a key assumption underpinning the efficacy of price-level targeting relative to inflation targeting for business cycle stabilization and mitigating the effects of the zero lower bound on nominal interest rates.
There appears to be a disconnect between the importance of the zero bound on nominal interest rates in the real-world and predictions from quantitative DSGE models. Recent economic events have reinforced the relevance of the zero bound for monetary policy whereas quantitative models suggest that the zero bound does not constrain (optimal) monetary policy.
This paper studies the steady-state costs of inflation in a general-equilibrium model with real per capita output growth and staggered nominal price and wage contracts.
The authors provide a detailed empirical analysis of Canadian city housing prices. They examine the long-run relationship between city house prices in Canada from 1981 to 2005 as well as idiosyncratic relations between city prices and city-specific variables.
The authors study the macroeconomic effects of non-zero trend inflation in a simple dynamic stochastic general-equilibrium model with sticky prices.
This paper summarizes the results of recent research evaluating the Bank of Canada's Quarterly Projection Model (QPM).
This paper examines the implications of changes in economic behaviour for simple inflation-forecast–based monetary rules of the type currently used at two inflation-targeting central banks. Three types of changes in economic behaviour are considered, changes that are motivated by developments in monetary and fiscal policy in the 1990s: changes in monetary policy credibility, changes in […]
The menu-cost models of price adjustment developed by Ball and Mankiw (1994;1995) predict that short-run movements in inflation should be positively related to the skewness and the variance of the distribution of disaggregated relative-price shocks in each period. We test these predictions on Canadian data using the distribution of changes in disaggregated producer prices to measure the skewness and standard deviation of relative-price shocks.
- "Risk Premium Shocks and the Zero Bound on Nominal Interest Rates"
(with Malik Shukayev). Forthcoming Journal of Money, Credit, and Banking.
- "Optimal Price-Level Drift Under Commitment in the Canonical New Keynesian Model"
(with Steven Ambler and Malik Shukayev). Canadian Journal of Economics, 45 (3): 1023-1036.
- "Trend Inflation, Wage and Price Rigidities, and Productivity Growth"
(with Kevin Moran, Stephen Murchison, and Andrew Rennison) Journal of Monetary Economics (2009) 56: 353-364.
- "Canadian City Housing Prices and Urban Market Segmentation"
(with Jason Allen, David P. Byrne, and Allan W. Gregory). Canadian Journal of Economics (2009) 42: 1132-1149.
- "The Macroeconomic Effects of Non-Zero Trend Inflation"
(with Steve Ambler and Nooman Rebei). Journal of Money, Credit and Banking (2007) 39: 1819-1836.
- "Inflation Persistence and Monetary Policy: A Simple Result"
Economics Letters (2007) 94: 26-31.
- "Government Expenditures and the Permanent-Income Model"
(with Tony Wirjanto) Review of Economic Dynamics (1998) 1: 719-730.
- "Intratemporal Substitution and Government Spending"
(with Tony Wirjanto) Review of Economics and Statistics (1997) 79: 605-609.
- "Intertemporal Substitution, Imports and the Permanent-Income Model"
(with Tony Wirjanto) Journal of International Economics (1996) 40: 439-457.
- "Nonstationary Regression Model with a Lagged Dependent Variable"
(with Tony Wirjanto) Communications in Statistics: Theory and Methods (1996) 25: 1489-1503.
- "Terms of Trade and Real Exchange Rates: The Canadian Evidence"
(with Simon van Norden) Journal of International Money and Finance (1995) 14: 83-104.