cover image: Integrating uncertainty and monetary policy-making : Intégrer l'incertitude dans l'élaboration de la politique monétaire - la perspective d'un praticien

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Integrating uncertainty and monetary policy-making : Intégrer l'incertitude dans l'élaboration de la politique monétaire - la perspective d'un praticien

9 Oct 2014

The latter may be taken as a proxy for the policy-maker’s “uncertainty,” but in the ideal world, this notion of uncertainty might better be described as “benign.” This is because, in the ideal situation, the error terms of the policy-maker’s model are additive and are believed to be white noise, so the policy-maker can act as if they simply do not exist. [...] A forecast of the economy is developed using all available data and analytical judgment, and the model is solved to produce a path for interest rates that will deliver the policy target, conditional on the remainder of the forecast. [...] The policy-maker simply cannot do this, given the requirement that the appropriate policy path consistent with the rest of the projection be engineered from the model over a longer horizon. [...] As noted in the introduction, a new set of risks has moved to the front burner in the wake of the global. [...] Indeed, the Bank of Canada perceives monetary policy to be the fourth line of defence against such risks; ahead of monetary policy, we would have (i) the behaviour of individual borrowers and financial intermediaries; (ii) regulatory oversight, which in Canada is the responsibility of the Superintendent of Financial Institutions and the Minister of Finance; and (iii) macroprudential policy, which
politics economics economy financial market finance recession inflation monetary policy models economic policy interest rates investments money supply economic model central bank bank mortgage bank of canada forecasting model financial macro economics macro politique monétaire contingencies in finance éventualités (finances)

Authors

Poloz, Stephen S

Pages
16
Published in
Ottawa, Ontario

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