Monetary policy transmission
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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. -
Habit Formation and the Persistence of Monetary Shocks
This paper studies the persistent effects of monetary shocks on output. Previous empirical literature documents this persistence, but standard general-equilibrium models with sticky prices fail to generate output responses beyond the duration of nominal contracts. -
Nominal Rigidity, Desired Markup Variations, and Real Exchange Rate Persistence
This paper develops and estimates a dynamic general-equilibrium sticky-price model that accounts for real exchange rate persistence. -
Corporate Bond Spreads and the Business Cycle
This paper examines the predictive power of credit spreads from the corporate bond market. The high-yield bond spread and investment-grade spread can explain 68 per cent and 42 per cent of output variations one year ahead, while the term spread based on government debts can explain only 12 per cent of them. -
The Monetary Transmission Mechanism at the Sectoral Level
This paper relies on simple vector autoregressions to investigate the monetary transmission mechanism in broad sectors of the Canadian economy. Two types of disaggregation are considered: one at the level of final expenditures, and one at the level of production. -
Predetermined Prices and the Persistent Effects of Money on Output
This paper illustrates a model of predetermined pricing, where firms set a fixed schedule of nominal prices at the time of price readjustment, based on the work of Fischer (1977). This type of price-setting specification cannot produce any excess persistence in a fixed-duration model of staggered prices, but we show that with a probabilistic model of price adjustment, as in Calvo (1983), a predetermined pricing specification can produce excess persistence. -
The Zero Bound on Nominal Interest Rates: How Important Is It?
This paper surveys the literature on the zero bound on the nominal interest rate. It addresses questions ranging from the conditions under which the zero bound on the nominal interest rate might occur to policy options to avoid or use to exit from such a situation. We discuss literature that examines historical and country evidence, and literature that uses models to generate evidence on this question. -
Some Explorations, Using Canadian Data, of the S-Variable in Akerlof, Dickens, and Perry (1996)
A number of authors have suggested that economies face a long-run inflation-unemployment trade-off due to downward nominal-wage rigidity. This theory has implications for the nature of the short-run Phillips curve when wage inflation is low. -
August 14, 1999
Passive Money, Active Money, and Monetary Policy
This article by the Bank's visiting economist examines the role of money in the transmission of monetary policy. Professor Laidler argues against the view of money as a passive variable that reacts to changes in prices, output, and interest rates but has no direct causative effect on them. He maintains that the empirical evidence supports the view of money playing an active role in the transmission mechanism. While he agrees that individual monetary aggregates can be difficult to read because of instabilities in the demand-for-money function, he argues that monetary aggregates, particularly those relating to transactions money, should have a more significant place in the hierarchy of policy variables that the Bank considers when formulating monetary policy.