Inflation: costs and benefits

• December 14, 2007

  The Costs of Inflation in New Keynesian Models

  Bank of Canada Review - Winter 2007-2008 Steve Ambler

  Ambler describes three new channels through which inflation affects economic welfare in New Keynesian models. These channels were absent from traditional analyses and may have caused researchers to underestimate the costs associated with variable inflation, even at relatively low levels of inflation. The article concludes with a preliminary assessment of the quantitative importance of the new channels and their significance for monetary policy.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation: costs and benefits, Monetary policy framework
• December 11, 2007

  The Zero Bound on Nominal Interest Rates: Implications for Monetary Policy

  Bank of Canada Review - Winter 2007-2008 Claude Lavoie, Stephen Murchison

  One of the most important factors that must be considered if countries are thinking about lowering the target level of inflation much below 2 per cent is the zero interest bound. Targeting inflation rates that are too low, the authors note, may restrict the ability of monetary policy to respond to economic shocks by limiting the amount by which interest rates can be eased.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation: costs and benefits, Interest rates, Monetary policy implementation