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Practical Model-Based Monetary Policy Analysis: A How-To Guide

Author

Listed:
  • Mr. Douglas Laxton
  • Mr. Andrew Berg
  • Mr. Philippe D Karam

Abstract

This paper provides a how-to guide to model-based forecasting and monetary policy analysis. It describes a simple structural model, along the lines of those in use in a number of central banks. This workhorse model consists of an aggregate demand (or IS) curve, a price-setting (or Phillips) curve, a version of the uncovered interest parity condition, and a monetary policy reaction function. The paper discusses how to parameterize the model and use it for forecasting and policy analysis, illustrating with an application to Canada. It also introduces a set of useful software tools for conducting a model-consistent forecast.

Suggested Citation

  • Mr. Douglas Laxton & Mr. Andrew Berg & Mr. Philippe D Karam, 2006. "Practical Model-Based Monetary Policy Analysis: A How-To Guide," IMF Working Papers 2006/081, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2006/081
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