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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)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2017
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Related works:
Journal Article: Changes in monetary regimes and the identification of monetary policy shocks: Narrative evidence from Canada (2018) Downloads
Working Paper: Changes in Monetary Regimes and the Identification of Monetary Policy Shocks: Narrative Evidence from Canada (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:17-39

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