E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit

• Financial Intermediation, Liquidity and Inflation

  Staff Working Paper 2008-49 Jonathan Chiu, Césaire Meh

  This paper develops a search-theoretic model to study the interaction between banking and monetary policy and how this interaction affects the allocation and welfare. Regarding how banking affects the welfare costs of inflation: First, we find that, with banking, inflation generates smaller welfare costs.

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy framework JEL Code(s): E, E4, E40, E5, E50

• Which Bank is the "Central" Bank? An Application of Markov Theory to the Canadian Large Value Transfer System

  Staff Working Paper 2008-42 Morten Bech, James Chapman, Rodney J. Garratt

  We use a method similar to Google's PageRank procedure to rank banks in the Canadian Large Value Transfer System (LVTS). Along the way we obtain estimates of the payment processing speeds for the individual banks.

  Content Type(s): Staff research, Staff working papers Topic(s): Payment clearing and settlement systems JEL Code(s): C, C1, C11, E, E5, E50, G, G2, G20

• Price Level Targeting in a Small Open Economy with Financial Frictions: Welfare Analysis

  Staff Working Paper 2008-40 Ali Dib, Caterina Mendicino, Yahong Zhang

  How important are the benefits of low price-level uncertainty? This paper explores the desirability of price-level path targeting in an estimated DSGE model fit to Canadian data. The policy implications are based on social welfare evaluations.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Inflation and prices, Monetary policy framework JEL Code(s): E, E3, E31, E32, E5, E52

• Adopting Price-Level Targeting under Imperfect Credibility: An Update

  Staff Working Paper 2008-37 Oleksiy Kryvtsov, Malik Shukayev, Alexander Ueberfeldt

  This paper measures the welfare gains of switching from inflation-targeting to price-level targeting under imperfect credibility. Vestin (2006) shows that when the monetary authority cannot commit to future policy, price-level targeting yields higher welfare than inflation targeting.

  Content Type(s): Staff research, Staff working papers Topic(s): Credibility, Monetary policy framework JEL Code(s): E, E3, E31, E5, E52

• The Role of Bank Capital in the Propagation of Shocks

  Staff Working Paper 2008-36 Césaire Meh, Kevin Moran

  Recent events in financial markets have underlined the importance of analyzing the link between the financial health of banks and real economic activity. This paper contributes to this analysis by constructing a dynamic general equilibrium model in which the balance sheet of banks affects the propagation of shocks.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial institutions, Financial system regulation and policies, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E52, G, G2, G21

• 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

• Are Bygones not Bygones? Modeling Price Level Targeting with an Escape Clause and Lessons from the Gold Standard

  Staff Working Paper 2008-27 Paul Masson, Malik Shukayev

  Like the gold standard, price level targeting (PT) involves not letting past deviations of inflation be bygones; both regimes return the price level (or price of gold) to its target. The experience of suspension of the gold standard in World War I, resumption in the 1920s (for some countries at a different parity), and final abandonment is reviewed.

  Content Type(s): Staff research, Staff working papers Topic(s): Credibility, Monetary policy framework JEL Code(s): E, E3, E31, E5, E52

• Price-Level versus Inflation Targeting with Financial Market Imperfections

  Staff Working Paper 2008-26 Francisco Covas, Yahong Zhang

  This paper compares price-level-path targeting (PT) with inflation targeting (IT) in a sticky-price, dynamic, general equilibrium model augmented with imperfections in both the debt and equity markets.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Inflation targets, Monetary policy framework JEL Code(s): E, E4, E40, E5, E50

• The Implementation of Monetary Policy in Canada

  Staff Discussion Paper 2008-9 Walter Engert, Toni Gravelle, Donna Howard

  The authors present a detailed discussion of the Bank of Canada's framework for the implementation of monetary policy. As background, they provide a brief overview of the financial system in Canada, including a discussion of the financial services industry and the money market.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Financial institutions, Financial markets, Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): E, E5, E52, E58, G, G2, G21