Monetary policy framework

• Alternative Targeting Regimes, Transmission Lags, and the Exchange Rate Channel

  Staff Working Paper 2003-39 Jean-Paul Lam

  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.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Monetary policy framework JEL Code(s): E, E5, E52, E58

• Simple Monetary Policy Rules in an Open-Economy, Limited-Participation Model

  Staff Working Paper 2003-38 Scott Hendry, Wai-Ming Ho, Kevin Moran

  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.

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy framework, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E52, E58, F, F3, F31

• Bank Lending, Credit Shocks, and the Transmission of Canadian Monetary Policy

  Staff Working Paper 2003-9 Joseph Atta-Mensah, Ali Dib

  The authors use a dynamic general-equilibrium model to study the role financial frictions play as a transmission mechanism of Canadian monetary policy, and to evaluate the real effects of exogenous credit shocks. Financial frictions, which are modelled as spreads between deposit and loan interest rates, are assumed to depend on economic activity as well as on credit shocks.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E3, E32, E4, E5, E51