Inflation and Unemployment in Competitive Search Equilibrium Staff Working Paper 2010-15 Mei Dong Using a monetary search model, Rocheteau, Rupert and Wright (2007) show that the relationship between inflation and unemployment can be positive or negative depending on the primitives of the model. The key features are indivisible labor, nonseparable preferences and bargaining. Content Type(s): Staff research, Staff working papers Topic(s): Inflation: costs and benefits JEL Code(s): E, E1, E12, E13, E4, E40, E5, E52
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. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Inflation targets, Inflation: costs and benefits, Monetary policy framework, Monetary policy implementation JEL Code(s): E, E4, E5, E52, F, F3, F4
April 9, 2009 Next Steps for Canadian Monetary Policy Bank of Canada Review - Spring 2009 Robert Amano, Thomas J. Carter, Donald Coletti 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. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Central bank research, Economic models, Inflation and prices, Inflation targets, Inflation: costs and benefits, Monetary policy framework
April 8, 2009 Price-Level Targeting and Stabilization Policy: A Review Bank of Canada Review - Spring 2009 Steve Ambler This article reviews arguments in the literature for and against price-level targeting, focusing on its costs and benefits compared with inflation targeting. Benefits of price-level targeting include the effect on forward-looking inflation expectations; the ability to substitute for commitment by a central bank to its future policies; lessening forecast errors; better economic performance in response to real shocks because of lower wage indexation; and a reduction in the problem of the zero lower bound on nominal interest rates. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation and prices, Inflation: costs and benefits, Monetary policy framework
April 7, 2009 Price-Level Uncertainty, Price-Level Targeting, and Nominal Debt Contracts Bank of Canada Review - Spring 2009 Allan Crawford, Césaire Meh, Yaz Terajima 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. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation targets, Inflation: costs and benefits, Monetary policy framework
April 5, 2009 Unexpected Inflation and Redistribution of Wealth in Canada Bank of Canada Review - Spring 2009 Césaire Meh, Yaz Terajima One of the most important arguments in favour of price stability is that unexpected inflation generates changes in the distribution of income and wealth among different economic agents. These redistributions occur because many loans are specified in fixed dollar terms and unexpected inflation redistributes wealth from creditors to debtors by reducing the real value of nominal assets and liabilities. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Central bank research, Inflation and prices, Inflation: costs and benefits, Sectoral balance sheet
Aggregate and Welfare Effects of Redistribution of Wealth Under Inflation and Price-Level Targeting Staff Working Paper 2008-31 Césaire Meh, José-Víctor Ríos-Rull, Yaz Terajima Since the work of Doepke and Schneider (2006a) and Meh and Terajima (2008), we know that inflation causes major redistribution of wealth – between households and the government, between nationals and foreigners, and between households within the same country. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Inflation and prices, Inflation targets, Inflation: costs and benefits, Monetary policy framework, Sectoral balance sheet JEL Code(s): D, D3, D31, E, E2, E21, E3, E31, E4, E44, E5, E52, E6, E63
The Welfare Implications of Fiscal Dominance Staff Working Paper 2008-28 Carlos De Resende, Nooman Rebei This paper studies the interdependence between fiscal and monetary policy in a DSGE model with sticky prices and non-zero trend inflation. We characterize the fiscal and monetary policies by a rule whereby a given fraction k of the government debt must be backed by the discounted value of current and future primary surpluses. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Fiscal policy, Inflation: costs and benefits, Monetary policy framework JEL Code(s): E, E3, E31, E4, E42, E5, E50, E6, E63
Inflation, Nominal Portfolios, and Wealth Redistribution in Canada Staff Working Paper 2008-19 Césaire Meh, Yaz Terajima There is currently a policy debate on potential refinements to monetary policy regimes in countries with low and stable inflation such as the U.S. and Canada. For example, in Canada, a systematic review of the current inflation targeting framework is underway. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Inflation targets, Inflation: costs and benefits, Monetary policy framework, Sectoral balance sheet JEL Code(s): D, D3, D31, D5, D58, E, E3, E31, E5, E50
Uncertainty, Inflation, and Welfare Staff Working Paper 2008-13 Jonathan Chiu, Miguel Molico This paper studies the welfare costs and the redistributive effects of inflation in the presence of idiosyncratic liquidity risk, in a micro-founded search-theoretical monetary model. We calibrate the model to match the empirical aggregate money demand and the distribution of money holdings across households, and study the effects of inflation under the implied degree of market incompleteness. Content Type(s): Staff research, Staff working papers Topic(s): Inflation: costs and benefits, Monetary policy framework JEL Code(s): E, E4, E40, E5, E50