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A comparison of optimal policy rules prior to and during inflation targeting: empirical evidence from Bank of Canada

Title	A comparison of optimal policy rules prior to and during inflation targeting: empirical evidence from Bank of Canada
Author	Eksi, O., Kaya Eksi, N., Özlale, Ümit
Publication Date:	2017
Publication Place	- Taylor & Francis
Subject	Inflation targeting, Optimal monetary policy rule, Taylor rule, Linear–quadratic regulator problem
Type	Periodical
Language	English
Digital	Yes
Manuscript	No
Library:	Özyeğin University
Library Asset ID	0003-6846
Record ID	2da9c613-cbdb-4895-b861-5d800bc49e6d
Library Location	Economics
Date	2017
Notes	Due to copyright restrictions, the access to the full text of this article is only available via subscription.
Sample Text	We examine policy rules that are consistent with inflation targeting (IT) framework in a small macroeconomic model of the Canadian economy. We set up an optimal linear regulator problem and derive policy rules to compare the dynamics of pre-IT and IT eras. We find that while the optimal monetary policy rule in the pre-IT period is best described with a loss function that attaches equal weight to price stability, financial stability and output stability; the IT era is dominated by the price stability objective followed by the financial stability and output stability, consecutively. Moreover, we do not find an explicit role for exchange rate stability in the objective function of the Bank of Canada for both monetary policy eras. We, then, compare the properties of the derived optimal rules with those of an ad hoc Taylor rule for the IT period. In response to inflationary shocks, Taylor rule brings down inflation rates more quickly compared to the derived policy rules, but at the cost of a higher sacrifice ratio and more volatile interest rates.
DOI	10.1080/00036846.2016.1273488
Cilt	49

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A comparison of optimal policy rules prior to and during inflation targeting: empirical evidence from Bank of Canada

Author Eksi, O., Kaya Eksi, N., Özlale, Ümit

Publication Date 2017

Publication Place - Taylor & Francis

Subject Inflation targeting, Optimal monetary policy rule, Taylor rule, Linear–quadratic regulator problem

Type Periodical

Language English

Digital Yes

Manuscript No

Library Özyeğin University

Library Asset ID 0003-6846

Record ID 2da9c613-cbdb-4895-b861-5d800bc49e6d

Library Location Economics

Date 2017

Notes Due to copyright restrictions, the access to the full text of this article is only available via subscription.

Sample Text We examine policy rules that are consistent with inflation targeting (IT) framework in a small macroeconomic model of the Canadian economy. We set up an optimal linear regulator problem and derive policy rules to compare the dynamics of pre-IT and IT eras. We find that while the optimal monetary policy rule in the pre-IT period is best described with a loss function that attaches equal weight to price stability, financial stability and output stability; the IT era is dominated by the price stability objective followed by the financial stability and output stability, consecutively. Moreover, we do not find an explicit role for exchange rate stability in the objective function of the Bank of Canada for both monetary policy eras. We, then, compare the properties of the derived optimal rules with those of an ad hoc Taylor rule for the IT period. In response to inflationary shocks, Taylor rule brings down inflation rates more quickly compared to the derived policy rules, but at the cost of a higher sacrifice ratio and more volatile interest rates.

DOI 10.1080/00036846.2016.1273488

Cilt 49