Monetary policy transmission
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The Implications of Transmission and Information Lags for the Stabilization Bias and Optimal Delegation
In two recent papers, Jensen (2002) and Walsh (2003), using a hybrid New Keynesian model, demonstrate that a regime that targets either nominal income growth or the change in the output gap can effectively replicate the outcome under commitment and hence reduce the size of the stabilization bias. -
Bank Capital, Agency Costs, and Monetary Policy
Evidence suggests that banks, like firms, face financial frictions when raising funds. -
Simple Monetary Policy Rules in an Open-Economy, Limited-Participation Model
The authors assess the stabilization properties of simple monetary policy rules within the context of a small open-economy model constructed around the limited-participation assumption and calibrated to salient features of the Canadian economy. By relying on limited participation as the main nominal friction that affects the artificial economy, the authors provide an important check of the robustness of the results obtained using alternative environments in the literature on monetary policy rules, most notably the now-standard "New Keynesian" paradigm that emphasizes rigidities in the price-setting mechanism. -
Monetary Policy in Estimated Models of Small Open and Closed Economies
The author develops and estimates a quantitative dynamic-optimizing model of a small open economy (SOE) with domestic and import price stickiness and capital-adjustment costs. A monetary policy rule allows the central bank to systematically manage the short-term nominal interest rate in response to deviations of inflation, output, and money growth from their steadystate levels. -
A Small Dynamic Hybrid Model for the Euro Area
The authors estimate and solve a small structural model for the euro area over the 1983–2000 period. Given the assumption of rational expectations, the model implies a set of orthogonality conditions that provide the basis for estimating the model's parameter by generalized method of moments. -
Bank Lending, Credit Shocks, and the Transmission of Canadian Monetary Policy
The authors use a dynamic general-equilibrium model to study the role financial frictions play as a transmission mechanism of Canadian monetary policy, and to evaluate the real effects of exogenous credit shocks. Financial frictions, which are modelled as spreads between deposit and loan interest rates, are assumed to depend on economic activity as well as on credit shocks. -
Money in the Bank (of Canada)
With the demise of monetary targeting over the past 20 years in many major countries, the question has arisen as to whether central banks should look at money at all when formulating and conducting monetary policy. -
Alternative Public Spending Rules and Output Volatility
One of the central lessons learned from the Great Depression was that adjusting government spending each year to balance the budget increases the volatility of output. -
Labour Markets, Liquidity, and Monetary Policy Regimes
We develop an equilibrium model of the monetary policy transmission mechanism that highlights information frictions in the market for money and search frictions in the market for labour.