E58 - Central Banks and Their Policies
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Monetary Policy under Model and Data-Parameter Uncertainty
Policy-makers in the United States over the past 15 to 20 years seem to have been cautious in setting policy: empirical estimates of monetary policy rules such as Taylor's (1993) rule are much less aggressive than those derived from optimizing models. -
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. -
Counterfeiting: A Canadian Perspective
Counterfeiting is a significant public policy issue, because paper money, despite rumours of its demise, remains an important part of our payments system. -
Monetary and Fiscal Policies in Canada: Some Interesting Principles for EMU?
Choosing a well-designed framework for fiscal and monetary policies is a challenge for economic authorities. -
When Bad Things Happen to Good Banks: Contagious Bank Runs and Currency Crises
The author develops a twin crisis model featuring multiple banks. -
Anatomy of a Twin Crisis
The author presents a model of a twin crisis, in which foreign and domestic residents play a banking game. Both "honest" and run equilibria of the post-deposit subgame exist; some run equilibria lead to a currency crisis, as agents convert domestic currency to foreign currency. -
Alternative Targeting Regimes, Transmission Lags, and the Exchange Rate Channel
Using a closed-economy model, Jensen (2002) and Walsh (2003) have, respectively, shown that a policy regime that optimally targets nominal income growth (NIT) or the change in the output gap (SLT) outperforms a regime that targets inflation, because NIT and SLT induce more inertia in the actions of the central bank, effectively replicating the outcome obtained under precommitment. The author obtains a very different result when the analysis is extended to open-economy models. -
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. -
A Comparison of Twelve Macroeconomic Models of the Canadian Economy
In this report, the authors examine and compare twelve private and public sector models of the Canadian economy with respect to their paradigm, structure, and dynamic properties. These open-economy models can be grouped into two economic paradigms.