Identifying Policy-makers' Objectives: An Application to the Bank of Canada

Nicholas Rowe and James Yetman

Staff Working Papers from Bank of Canada

Abstract: In this paper, we develop a new way to test hypotheses about policy-makers' targets, and we implement that test for Canadian monetary policy. If, for example, the Bank of Canada is using interest rates to target an inflation rate of 2 per cent and there is an 8-quarter lag in the effect of the interest rate on inflation, then deviations of inflation from 2 per cent should be unforecastable and uncorrelated with any information in the Bank of Canada's information set lagged by 8 quarters. This would imply that empirical causality tests of monetary policy on inflation could be very misleading. Our test indicates that there was indeed a major change in the Bank of Canada's objectives about the time when formal inflation targets were announced.

Keywords: Inflation; Targets (search for similar items in EconPapers)
JEL-codes: E52 E61 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2000
New Economics Papers: this item is included in nep-his, nep-ind 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:00-11

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