Changes in Monetary Regimes and the Identification of Monetary Policy Shocks: Narrative Evidence from Canada

Julien Champagne and Rodrigo Sekkel

Staff Working Papers from Bank of Canada

Abstract: We use narrative evidence along with a novel database of real-time data and forecasts from the Bank of Canada's staff economic projections from 1974 to 2015 to construct a new measure of monetary policy shocks and estimate the effects of monetary policy in Canada. We show that it is crucial to take into account the break in the conduct of monetary policy caused by the announcement of inflation targeting in 1991 when estimating the effects of monetary policy. For instance, we find that a 100-basis-point increase in our new shock series leads to a 1.0 per cent decrease in real GDP and a 0.4 per cent fall in the price level, while not accounting for the break leads to a permanent decrease in real GDP and a price puzzle. Finally, we compare our results with updated narrative evidence for the U.S. and the U.K. and argue that taking into account changes in the conduct of monetary policy in these countries also yields significantly different effects of monetary policy.

Keywords: Business fluctuations and cycles; Central bank research; Econometric and statistical methods; Exchange rate regimes; Inflation and prices; Inflation targets; Interest rates; Monetary Policy; Monetary policy framework (search for similar items in EconPapers)
JEL-codes: E31 E32 E43 E52 E58 (search for similar items in EconPapers)
Pages: 76 pages
Date: 2017
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 (11)

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2017/09/swp2017-39.pdf

Related works:
Journal Article: Changes in monetary regimes and the identification of monetary policy shocks: Narrative evidence from Canada (2018)
Working Paper: Changes in Monetary Regimes and the Identification of Monetary Policy Shocks: Narrative Evidence from Canada (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:17-39

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().