Price Level versus Inflation Targeting under Model Uncertainty Staff Working Paper 2008-15 Gino Cateau The purpose of this paper is to make a quantitative contribution to the inflation versus price level targeting debate. It considers a policy-maker that can set policy either through an inflation targeting rule or a price level targeting rule to minimize a quadratic loss function using the actual projection model of the Bank of Canada (ToTEM). Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy and uncertainty JEL Code(s): D, D8, D81, E, E5, E58
Uncertainty, Inflation, and Welfare Staff Working Paper 2008-13 Jonathan Chiu, Miguel Molico This paper studies the welfare costs and the redistributive effects of inflation in the presence of idiosyncratic liquidity risk, in a micro-founded search-theoretical monetary model. We calibrate the model to match the empirical aggregate money demand and the distribution of money holdings across households, and study the effects of inflation under the implied degree of market incompleteness. Content Type(s): Staff research, Staff working papers Topic(s): Inflation: costs and benefits, Monetary policy framework JEL Code(s): E, E4, E40, E5, E50
A Model of Tiered Settlement Networks Staff Working Paper 2008-12 James Chapman, Jonathan Chiu, Miguel Molico This paper develops a model of settlement system to study the endogenous structure of settlement networks, and the welfare consequences of clearing agent failure. The equilibrium degree of tiering is endogenously determined by the cost structure and the information structure. Content Type(s): Staff research, Staff working papers Topic(s): Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E58, G, G2, G21
Credit, Asset Prices, and Financial Stress in Canada Staff Working Paper 2008-10 Miroslav Misina, Greg Tkacz Historical narratives typically associate financial crises with credit expansions and asset price misalignments. The question is whether some combination of measures of credit and asset prices can be used to predict these events. Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial stability JEL Code(s): E, E5, G, G1, G10
Sterilized Intervention in Emerging-Market Economies: Trends, Costs, and Risks Staff Discussion Paper 2008-4 Robert Lavigne The author examines recent trends in sterilized intervention among emerging-market economies, to determine the size and extent of this policy in relation to earlier periods of heavy reserve accumulation. He then analyzes whether the domestic costs and risks of substantial and prolonged sterilization are beginning to manifest themselves. Content Type(s): Staff research, Staff discussion papers Topic(s): Exchange rate regimes, Financial stability, International topics JEL Code(s): E, E5, E52, F, F3, F31, O, O2, O24
Welfare Effects of Commodity Price and Exchange Rate Volatilities in a Multi-Sector Small Open Economy Model Staff Working Paper 2008-8 Ali Dib This paper develops a multi-sector New Keynesian model of a small open economy that includes commodity, manufacturing, non-tradable, and import sectors. Price and wage rigidities are sector specific, modelled à la Calvo-Yun style contracts. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Exchange rate regimes, International topics JEL Code(s): E, E4, E5, E52, F, F3, F4
Inflation Targeting and Price-Level-Path Targeting in the GEM: Some Open Economy Considerations Staff Working Paper 2008-6 Donald Coletti, René Lalonde, Dirk Muir This paper compares the performance of simple inflation targeting (IT) and price-level path targeting (PLPT) rules to stabilize the macroeconomy, in response to a series of shocks, similar to those seen in Canada and the United States over the 1983 to 2004 period. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Inflation and prices, Inflation: costs and benefits, Monetary policy framework JEL Code(s): C, C5, C51, C52, E, E1, E17, E3, E31, E5, E52
Adopting Price-Level Targeting under Imperfect Credibility Staff Working Paper 2008-3 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
Price-Level Targeting and Stabilization Policy: A Review Staff Discussion Paper 2007-11 Steve Ambler The author surveys recent articles on the costs and benefits of price-level targeting versus inflation targeting, focusing on the benefits and costs of price-level targeting as a tool for stabilization policy. He reviews papers that examine how price-level targeting affects the short-run trade-off between output and inflation variability by influencing expectations of future inflation. The […] Content Type(s): Staff research, Staff discussion papers Topic(s): Monetary policy framework JEL Code(s): E, E3, E31, E32, E5, E52
Rediscounting Under Aggregate Risk with Moral Hazard Staff Working Paper 2007-51 James Chapman, Antoine Martin Freeman (1999) proposes a model in which discount window lending and open market operations have different effects. This is important because in most of the literature, these policies are indistinguishable. Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Financial markets, Payment clearing and settlement systems JEL Code(s): E, E5, E58, G, G2, G20