E52 - Monetary Policy

• Estimating DSGE-Model-Consistent Trends for Use in Forecasting

  Staff Working Paper 2009-35 Jean-Philippe Cayen, Marc-André Gosselin, Sharon Kozicki

  The workhorse DSGE model used for monetary policy evaluation is designed to capture business cycle fluctuations in an optimization-based format. It is commonplace to log-linearize models and express them with variables in deviation-from-steady-state format.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C3, C32, E, E3, E5, E52

• 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.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial stability, Inflation targets JEL Code(s): E, E4, E44, E5, E52

• Exchange Rate Pass-through and Monetary Policy: How Strong is the Link?

  Staff Working Paper 2009-29 Stephen Murchison

  Several authors have presented reduced-form evidence suggesting that the degree of exchange rate pass-through to the consumer price index has declined in Canada since the early 1980s and is currently close to zero.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Monetary policy transmission JEL Code(s): E, E5, E52, F, F3, F31, F4, F41

• Risk Premium Shocks and the Zero Bound on Nominal Interest Rates

  Staff Working Paper 2009-27 Robert Amano, Malik Shukayev

  There appears to be a disconnect between the importance of the zero bound on nominal interest rates in the real-world and predictions from quantitative DSGE models. Recent economic events have reinforced the relevance of the zero bound for monetary policy whereas quantitative models suggest that the zero bound does not constrain (optimal) monetary policy.

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy framework JEL Code(s): E, E3, E32, E5, E52

• Consumption, Housing Collateral, and the Canadian Business Cycle

  Staff Working Paper 2009-26 Ian Christensen, Paul Corrigan, Caterina Mendicino, Shin-Ichi Nishiyama

  Using Bayesian methods, we estimate a small open economy model in which consumers face limits to credit determined by the value of their housing stock. The purpose of this paper is to quantify the role of collateralized household debt in the Canadian business cycle.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Monetary policy transmission JEL Code(s): E, E2, E21, E3, E32, E4, E44, E5, E52, R, R2, R21

• Resurrecting the Role of Real Money Balance Effects

  Staff Working Paper 2009-24 José Dorich

  I present a structural econometric analysis supporting the hypothesis that money is still relevant for shaping inflation and output dynamics in the United States. In particular, I find that real money balance effects are quantitatively important, although smaller than they used to be in the early postwar period.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Monetary aggregates, Monetary policy transmission JEL Code(s): E, E3, E31, E32, E5, E52

• Adopting Price-Level Targeting under Imperfect Credibility in ToTEM

  Staff Working Paper 2009-17 Gino Cateau, Oleksiy Kryvtsov, Malik Shukayev, Alexander Ueberfeldt

  Using the Bank of Canada's main projection and policy-analysis model, ToTEM, this paper measures the welfare gains of switching from inflation targeting to price-level targeting under imperfect credibility. Following the policy change, private agents assign a probability to the event that the policy-maker will revert to inflation-targeting next period.

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

• Real Effects of Price Stability with Endogenous Nominal Indexation

  Staff Working Paper 2009-16 Césaire Meh, Vincenzo Quadrini, Yaz Terajima

  We study a model with repeated moral hazard where financial contracts are not fully indexed to inflation because nominal prices are observed with delay as in Jovanovic & Ueda (1997).

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial markets, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E2, E21, E3, E31, E4, E44, E5, E52

• 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.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial stability, Inflation targets JEL Code(s): E, E4, E44, E5, E52

• Optimal Policy under Commitment and Price Level Stationarity

  Staff Working Paper 2009-8 Gino Cateau

  This paper proposes a simple analytical method to determine the stationarity of an unnormalized variable from the solution to a normalized model i.e. a model whose variables must be expressed in relative terms or must be differenced for a solution to exist.

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy framework JEL Code(s): E, E5, E52, E58