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73 result(s)

August 19, 2010

Monetary Policy and the Zero Bound on Nominal Interest Rates

The recent financial crisis and global economic slowdown have renewed interest in monetary policy options when the policy interest rate is at or near zero.
August 19, 2010

Price-Level Targeting and Relative-Price Shocks

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.
August 19, 2010

Conference Summary: New Frontiers in Monetary Policy Design

Although the current inflation-targeting regime has served Canadians well, sound public policy demands the continuous exploration of possible improvements in the monetary policy framework.

Alternative Optimized Monetary Policy Rules in Multi-Sector Small Open Economies: The Role of Real Rigidities

Staff Working Paper 2010-9 Carlos De Resende, Ali Dib, Maral Kichian
Inflation-targeting central banks around the world often state their inflation objectives with regard to the consumer price index (CPI). Yet the literature on optimal monetary policy based on models with nominal rigidities and more than one sector suggests that CPI inflation is not always the best choice from a social welfare perspective.
March 9, 2010

Inflation Expectations and the Conduct of Monetary Policy: A Review of Recent Evidence and Experience

This article explores the role of inflation expectations in the conduct of monetary policy. It reviews the various measures of inflation expectations used by central banks, including surveys and market-based indicators, and considers their advantages and disadvantages. It examines the critical role of inflation expectations in the framework that central banks use to understand, forecast, and control inflation. It also looks at their role as an indicator of central bank credibility. The behaviour of inflation expectations over the past two years is analyzed and policy conclusions are offered.

Optimal Monetary Policy during Endogenous Housing-Market Boom-Bust Cycles

Staff Working Paper 2009-32 Hajime Tomura
This paper uses a small-open economy model for the Canadian economy to examine the optimal Taylor-type monetary policy rule that stabilizes output and inflation in an environment where endogenous boom-bust cycles in house prices can occur.

Heterogeneous Beliefs and Housing-Market Boom-Bust Cycles in a Small Open Economy

Staff Working Paper 2009-15 Hajime Tomura
This paper introduces heterogeneous beliefs among households in a small open economy model for the Canadian economy. The model suggests that simultaneous boom-bust cycles in house prices, output, investment, consumption and hours worked emerge when credit-constrained mortgage borrowers expect that future house prices will rise and this expectation is neither shared by savers nor realized ex-post.
April 9, 2009

Next Steps for Canadian Monetary Policy

In 2006, the Bank initiated a research program exploring two alternatives to the current inflation-targeting framework: (i) lowering the inflation target and (ii) shifting to a price-level target. This article discusses progress to date, places the Bank's findings in the context of a broader literature, and identifies avenues for future research.
April 7, 2009

Price-Level Uncertainty, Price-Level Targeting, and Nominal Debt Contracts

Many central banks around the world have embraced inflation targeting as a monetary policy framework. Interest is growing, however, in price-level targeting as an alternative. The choice of frameworks has important consequences for financial contracts, most of which are not fully indexed to the price level. Changes in the price level therefore lead to changes in the real value of contracts.

Monetary Policy Lag, Zero Lower Bound, and Inflation Targeting

Staff Working Paper 2009-2 Shin-Ichi Nishiyama
Although the concept of monetary policy lag has historical roots deep in the monetary economics literature, relatively little attention has been paid to the idea. In this paper, we build on Svensson's (1997) inflation targeting framework by explicitly taking into account the lagged effect of monetary policy and characterize the optimal monetary policy reaction function both in the absence and in the presence of the zero lower bound on the nominal interest rate.