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A Simple Test of Simple Rules: Can They Improve How Monetary Policy is Implemented with Inflation Targets?

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  • Nicholas Rowe
  • David Tulk

Abstract

The authors evaluate whether an assortment of simple rules could improve how the Bank of Canada implements its inflation-targeting monetary policy. They focus on measuring the correlation between the deviations of inflation from the target and the lagged deviations of rule recommendations from the actual policy interest rate. This empirical procedure evaluates the rules in a model-free environment and uses historical data over the Bank’s inflation-targeting regime. The authors find that the Bank would not improve its policy of targeting inflation by paying more attention to the advice provided by these rules.

Suggested Citation

  • Nicholas Rowe & David Tulk, 2003. "A Simple Test of Simple Rules: Can They Improve How Monetary Policy is Implemented with Inflation Targets?," Staff Working Papers 03-31, Bank of Canada.
    • Handle: RePEc:bca:bocawp:03-31
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    References listed on IDEAS

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    1. Stephen Murchison, "undated". "NAOMI A New Quarterly Forecasting Model Part II: A Guide to Canadian NAOMI," Working Papers-Department of Finance Canada 2001-25, Department of Finance Canada.
    2. Andrew T.. Levin & Volker Wieland & John Williams, 1999. "Robustness of Simple Monetary Policy Rules under Model Uncertainty," NBER Chapters, in: Monetary Policy Rules, pages 263-318, National Bureau of Economic Research, Inc.
    3. Peter Isard & Douglas Laxton & Ann-Charlotte Eliasson, 1999. "Simple Monetary Policy Rules Under Model Uncertainty," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(4), pages 537-577, November.
    4. Denise Côté & John Kuszczak & Jean‐Paul Lam & Ying Liu & Pierre St‐Amant, 2004. "The performance and robustness of simple monetary policy rules in models of the Canadian economy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(4), pages 978-998, November.
    5. Maral Kichian, 2001. "On the Nature and the Stability of the Canadian Phillips Curve," Staff Working Papers 01-4, Bank of Canada.
    6. Tiff Macklem, 2002. "Information and Analysis for Monetary Policy: Coming to a Decision," Bank of Canada Review, Bank of Canada, vol. 2002(Summer), pages 11-18.
    7. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156, National Bureau of Economic Research, Inc.
    8. Nicholas Rowe, 2002. "How to Improve Inflation Targeting at the Bank of Canada," Staff Working Papers 02-23, Bank of Canada.
    9. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, June.
    10. Jamie Armour & Ben Fung & Dinah Maclean, 2002. "Taylor Rules in the Quarterly Projection Model," Staff Working Papers 02-1, Bank of Canada.
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    Cited by:

    1. Onanuga, Abayomi & Oshinloye, Michael & Onanuga, Olaronke, 2015. "Monetary Policy-Making in Nigeria: Does evidence support augmented Taylor Rule?," MPRA Paper 83329, University Library of Munich, Germany.
    2. Andrés Felipe Giraldo Palomino, 2008. "Aversión a la inflación y regla de Taylor en Colombia 1994-2005," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, December.

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    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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