A Simple Test of Simple Rules: Can They Improve How Monetary Policy is Implemented with Inflation Targets? Staff Working Paper 2003-31 Nicholas Rowe, David Tulk The authors evaluate whether an assortment of simple rules could improve how the Bank of Canada implements its inflation-targeting monetary policy. They focus on measuring the correlation between the deviations of inflation from the target and the lagged deviations of rule recommendations from the actual policy interest rate. Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets, Monetary policy implementation JEL Code(s): E, E5
How to Improve Inflation Targeting at the Bank of Canada Staff Working Paper 2002-23 Nicholas Rowe This paper shows that if the Bank of Canada is optimally adjusting its monetary policy instrument in response to inflation indicators to target 2 per cent inflation at a two-year horizon, then deviations of inflation from 2 per cent represent the Bank's forecast errors, and should be uncorrelated with its information set, which includes two-year lagged values of the instrument and the indicators. Positive or negative correlations are evidence of systematic errors in monetary policy. Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets, Monetary and financial indicators, Monetary policy implementation JEL Code(s): E, E5
August 20, 2002 Information and Analysis for Monetary Policy: Coming to a Decision Bank of Canada Review - Summer 2002 Tiff Macklem This article outlines one of the Bank's key approaches to dealing with the uncertainty that surrounds decisions on monetary policy: the consideration of a wide range of information from a variety of sources. More specifically, it describes the information and analysis that the monetary policy decision-makers—the Governing Council of the Bank of Canada—receive in the two or three weeks leading up to a decision on the setting of the policy rate—the target overnight interest rate. The article also describes how the Governing Council reaches this decision. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Monetary and financial indicators, Monetary policy framework, Monetary policy implementation
Why Do Central Banks Smooth Interest Rates? Staff Working Paper 2001-17 Gabriel Srour It is commonly observed that central banks respond gradually to economic shocks, moving the interest rate in small discrete steps in the same direction over an extended period of time. This paper examines the empirical evidence regarding central banks' smoothing of interest rates, paying particular attention to the case of Canada. Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy implementation JEL Code(s): E, E5
Reactions of Canadian Interest Rates to Macroeconomic Announcements: Implications for Monetary Policy Transparency Staff Working Paper 2001-5 Toni Gravelle, Richhild Moessner In this study we statistically quantify the reactions of Canadian and U.S. interest rates to macroeconomic announcements released in Canada and in the United States. We find that Canadian interest rates react very little to Canadian macroeconomic news and are significantly affected by U.S. macroeconomic news, which indicates that international influences on the Canadian fixed-income markets are important. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Interest rates, Monetary policy implementation JEL Code(s): E, E0, E4, E5
On Commodity-Sensitive Currencies and Inflation Targeting Staff Working Paper 2001-3 Kevin Clinton Two aspects of the recent monetary history of Canada, Australia, and New Zealand stand out: the sensitivity of their dollars to prices of resource-based commodities, and inflation targeting. This paper explores various aspects of these phenomena. Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Inflation targets, International topics, Monetary policy implementation JEL Code(s): E, E3, E31, E5, E52, F, F3, F31, F4, F42
Greater Transparency in Monetary Policy: Impact on Financial Markets Technical Report No. 86 Philippe Muller, Mark Zelmer Measures have been taken by the Bank of Canada to increase the transparency of Canadian monetary policy. This paper examines whether the greater transparency has improved financial markets' understanding of the conduct of monetary policy. Content Type(s): Staff research, Technical reports Topic(s): Financial markets, Monetary policy implementation JEL Code(s): E, E5, E52, E58, G, G1, G14
November 11, 1998 A primer on the implementation of monetary policy in the LVTS environment Bank of Canada Review - Autumn 1998 Donna Howard The author summarizes the objectives and key elements of the framework that the Bank will use to implement monetary policy under the new payments system. The article includes a comparison of the key features of the pre-LVTS framework with that to be used in the LVTS environment. It also features a glossary of terms with respect to the Bank's monetary policy operations. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Monetary policy implementation, Payment clearing and settlement systems
December 13, 1997 The overnight market in Canada Bank of Canada Review - Winter 1997-1998 Eugene Lundrigan, Sari Toll The overnight market is an active forum where participants with a temporary surplus or shortage of funds can lend or borrow until the next business day. The level of interest rates in the overnight market has always been closely linked to the Bank of Canada's monetary policy operations. In this article, the authors describe the evolution of the market from its roots in the 1950s, the development of the Bank's monetary policy operations in the market, and how the market operates today. They also examine the outlook for the overnight market, particularly the implications of the new Large-Value Transfer System. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Monetary policy implementation
Constraints on the Conduct of Canadian Monetary Policy in the 1990s: Dealing with Uncertainty in Financial Markets Technical Report No. 80 Kevin Clinton, Mark Zelmer Canada's economic performance in the first half of the 1990s was adversely affected by high premiums in interest rates that were brought on by political and economic uncertainties. Content Type(s): Staff research, Technical reports Topic(s): Monetary policy and uncertainty, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E5, E58