An Optimized Monetary Policy Rule for ToTEM

Jean-Philippe Cayen, Amy Corbett and Patrick Perrier

Staff Working Papers from Bank of Canada

Abstract: The authors propose a monetary policy rule for the Terms-of-Trade Economic Model (ToTEM), the Bank of Canada's new projection and policy-analysis model for the Canadian economy. They consider simple instrument rules such as Taylor-type and inflation-forecast-based rules. The proposed rule minimizes a loss function that reflects the assumed preferences of the monetary authority over inflation and output, as well as over the variability of its instrument. The authors also investigate how robust the proposed rule is with respect to a particular realization of shocks that differs from the historical distribution used to find the optimized rule.

Keywords: Economic models; Monetary policy framework; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: E5 E52 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:06-41

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