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Champagne, Julien
Sekkel, Rodrigo
Year of Publication: 
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2017-39
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.
Business fluctuations and cycles
Central bank research
Econometric andstatistical methods
exchange rate regimes
inflation and prices
inflation targets
interest rates
monetary policy
monetary policy framework
Document Type: 
Working Paper

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