Identifying a policymaker's target: an application to the Bank of Canada

Nicholas Rowe and James Yetman

Canadian Journal of Economics, 2002, vol. 35, issue 2, 239-256

Abstract: We develop a new way to test hypotheses about policymakers' targets and implement that test for Canadian monetary policy. For example, if the Bank of Canada is targeting a 2 per cent inflation rate, and if the Bank's instrument takes eight quarters to affect inflation, then deviations of inflation from 2 per cent should be uncorrelated with the Bank's information set lagged eight quarters. We show that there was a major change in the Bank's objectives near the time when formal inflation targets were announced and that the Bank has indeed been targeting inflation since then.

JEL-codes: E52 E61 (search for similar items in EconPapers)
Date: 2002
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