Should Central Banks Adjust Their Target Horizons in Response to House-Price Bubbles?

Meenakshi Roi and Rhys Mendes ()

Discussion Papers from Bank of Canada

Abstract: The authors investigate the implications of house-price bubbles for the optimal inflation-target horizon using a dynamic general-equilibrium model with credit frictions, house-price bubbles, and small open-economy features. They find that, given the distribution of shocks and inflation persistence over the past 25 years, the optimal target horizon for Canada tends to be at the lower end of the six- to eight-quarter range that has characterized the Bank of Canada's policy since the inception of the inflation-targeting regime. The authors' results also suggest that it may be appropriate to take a longer view of the inflation-target horizon when the economy faces a houseprice bubble.

Keywords: Central bank research; Economic models; Monetary policy framework; Credit and credit aggregates; Inflation targets; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: E42 E44 E5 E52 E58 E61 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2007
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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