Commodities and Monetary Policy: Implications for Inflation and Price Level Targeting
Paul Masson (),
Dirk Muir () and
Staff Working Papers from Bank of Canada
We examine the relative ability of simple inflation targeting (IT) and price level targeting (PLT) monetary policy rules to minimize both inflation variability and business cycle fluctuations in Canada for shocks that have important consequences for global commodity prices. We find that commodities can play a key role in affecting the relative merits of the alternative monetary policy frameworks. In particular, large real adjustment costs in energy supply and demand induce highly persistent cost-push pressures in the economy leading to a significant deterioration in the inflation – output gap trade-off available to central banks, particularly to those pursuing price level targeting.
Keywords: Economic models; Inflation and prices; International topics; Monetary policy framework (search for similar items in EconPapers)
JEL-codes: E17 E31 E37 E52 F41 Q43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:12-16
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 ().