Wicksell at the Bank of Canada

Kevin Clinton

No 273563, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: Wicksell, writing around the start of the 20th century, outlined an approach to monetary policy strikingly similar to the modern approach, of which the Bank of Canada has been a pioneer. Its features include: the overriding objective of price stability (or low inflation); an interest rate instrument controlled by the rates on settlement balances at the central bank; and a policy rule under which the instrument varies in response to deviations from the objective. Wicksell’s natural rate of interest has resurfaced as the neutral rate in mainstream macroeconomic models; and his description of the inflation process has parallels in the modern Phillips curve. Moreover, in a mandate for price stability, one can find a logical basis for the independence and accountability of central banks. The paper tries to explain why Wicksell’s ideas fell by the wayside for a century, and describes how the Bank of Canada, by pragmatic steps in the 1990s, helped reinvent Wicksell, and install a neo-Wicksellian monetary policy.

Keywords: Demand and Price Analysis; Financial Economics (search for similar items in EconPapers)
Pages: 24
Date: 2006-06
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:273563

DOI: 10.22004/ag.econ.273563

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