Monetary policy framework

• November 13, 2014

  Recent Developments in Experimental Macroeconomics

  Bank of Canada Review - Autumn 2014 Robert Amano, Oleksiy Kryvtsov, Luba Petersen

  This article describes experimental economics, in general, and new developments in experimental macroeconomics, in particular. The approach has a clear niche in providing evidence on economic phenomena that cannot be observed directly or that are difficult to measure. Experimental work conducted by Bank of Canada economists has shed light on a number of issues important to monetary policy, such as the relative efficacy between price-level and inflation targeting, and the nature of inflation expectations formation.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation and prices, Monetary policy framework JEL Code(s): C, C9, E, E3, E31, E5, E52
• November 13, 2014

  Should Forward Guidance Be Backward-Looking?

  Bank of Canada Review - Autumn 2014 Rhys R. Mendes, Stephen Murchison

  When constrained by the zero lower bound, some central banks have communicated a threshold that must be met before short-term interest rates would be permitted to rise. Simulation results for Canada show that forward guidance that is conditional on achieving a price-level threshold can theoretically raise demand and inflation expectations by significantly more than unemployment thresholds. This superior performance is attributable to the fact that the price-level threshold depends on past inflation outcomes. In practice, however, history-dependent thresholds such as this might be more challenging for central banks to communicate.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Business fluctuations and cycles, Monetary policy framework JEL Code(s): E, E5, E52, E58