Feedback Rules for Inflation Control: An Overview of Recent Literature

Feedback rules are rules aimed at guiding policy-makers as they face the problem of keeping inflation close to a desired path without causing variability elsewhere in the economy. These rules link short-term interest rates, controlled by the central bank, to the rate of inflation and/or its deviation from a target rate. The authors describe the most popular types of feedback rules and review some simulation results.

Les effets de la variabilité des taux de change sur le commerce international. Une analyse pour le Canada

Cette étude examine l’impact de la variabilité du taux de change effectif du dollar canadien sur le volume et le prix des échanges extérieurs du Canada pendant la dernière période de taux de change flottant. L’effet de deux types distincts de variabilité sur l’ensemble des échanges extérieurs de biens ainsi que sur les échanges de certains sous-groupes est évalué empiriquement. Bien que la variabilité ait dans certaines équations un impact statistiquement significatif, elle apparaît avoir un effet négligeable en termes économiques.This paper examines the impact of the variability of the Canadian dollar effective exchange rate on the volumes and prices of Canadian trade during the recent floating exchange rate regime. The effects of two distinct types of variability on total trade flows, as well as on trade disaggregated by category are empirically assessed. Even though the two measures of variability have statistically significant impacts in some equations, their effects turn out to be economically negligible

Inflation expectations and Real Return Bonds

The existence of a market for Real Return Bonds in Canada provides a direct tool with which to measure market expectations of inflation by comparing the yields on these bonds with those on conventional Government of Canada long-term bonds. However, there are other factors besides inflation expectations that may affect the yield differential. After reviewing these factors, the authors note that they can lead to a potentially large bias in the level of inflation expectations. The changes in the differential over time may, nonetheless, be a good indicator of movements in long-run inflation expectations. Based on this measure, expectations of long-run inflation have declined since late 1994.

Une analyse empirique du lien monnaie-prix au canada

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Les effets de la variabilité des taux de change sur le commerce international. Une analyse pour le Canada

This paper examines the impact of the variability of the Canadian dollar effective exchange rate on the volumes and prices of Canadian trade during the recent floating exchange rate regime. The effects of two distinct types of variability on total trade flows, as well as on trade disaggregated by category are empirically assessed. Even though the two measures of variability have statistically significant impacts in some equations, their effects turn out to be economically negligible. Cette étude examine l’impact de la variabilité du taux de change effectif du dollar canadien sur le volume et le prix des échanges extérieurs du Canada pendant la dernière période de taux de change flottant. L’effet de deux types distincts de variabilité sur l’ensemble des échanges extérieurs de biens ainsi que sur les échanges de certains sous-groupes est évalué empiriquement. Bien que la variabilité ait dans certaines équations un impact statistiquement significatif, elle apparaît avoir un effet négligeable en termes économiques.

Price-Level Targeting

In November 2006, the Bank of Canada announced its intention to lead a concerted research program over the next few years on the type of monetary policy framework that would best contribute to the economic well-being of Canadians in the decades ahead. The research will focus on two broad questions: whether economic welfare might be improved by targeting a rate of inflation lower than 2 per cent, and whether economic welfare might be improved by moving from an inflation-targeting (IT) framework to some form of price-level targeting (PLT). This paper focuses on the second question. The author provides an overview of the main conclusions in the literature on the relative merits of replacing IT with PLT, identifies some key outstanding questions, and outlines the Bank's research program. The author concludes that, compared with the conventional wisdom that prevailed a decade ago, recent analysis is more promising for PLT. Nevertheless, the models that have been used so far often ignore some of the key potential benefits, or some of the key potential costs, associated with PLT. More research is needed before one can draw strong conclusions.Monetary policy framework

The Intertemporal Nature of Information Conveyed by the Price System

hat you sure learn a lot of amazing stuff in university, and that the modern world was more complicated than the one he had known. This study aims to make amends to people of another generation, like my grandfather, who were labelled by economists as suffering from money illusion. I am now convinced that my diagnosis at that time was wrong. My grandfather was not suffering from money illusion. He had simply failed to adapt to the change in the monetary regime that had slowly, and at times chaotically, taken place since the early part of the 20th century. My grandfather still worried about the intrinsic price level, because in his day it had been rational to do so. I base this analysis on a model of individuals' choices, described in the following section. The analysis shows that the price system does not play the same role as a vehicle of intertemporal information under different monetary regimes. For example, if the rate of inflation oscillates within a target range established by