E52 - Monetary Policy
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Estimating DSGE-Model-Consistent Trends for Use in Forecasting
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. -
Optimal Monetary Policy during Endogenous Housing-Market Boom-Bust Cycles
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. -
Exchange Rate Pass-through and Monetary Policy: How Strong is the Link?
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. -
Risk Premium Shocks and the Zero Bound on Nominal Interest Rates
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. -
Consumption, Housing Collateral, and the Canadian Business Cycle
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. -
Resurrecting the Role of Real Money Balance Effects
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. -
Adopting Price-Level Targeting under Imperfect Credibility in ToTEM
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. -
Real Effects of Price Stability with Endogenous Nominal Indexation
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). -
Heterogeneous Beliefs and Housing-Market Boom-Bust Cycles in a Small Open Economy
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.