Stability of central bank preferences, macroeconomic shocks, and efficiency of the monetary policy: empirical evidence for Canada

Abstract

Following the approach suggested by Favero and Rovelli (2002), I estimate a three-equations system for different sub-samples for Canada. The results indicate that the preferences of the monetary authority have changed between the different regimes. In particular, the parameter associated to the implicit target of inflation has been reduced significantly. The macroeconomic conditions from the side of the aggregate demand have been more favourable than those related to the aggregate supply. The SD of the monetary rule suggests that it has been conducted successfully in the last regime.

Acknowledgement

Financial support from the Faculty of Social Sciences is acknowledged.

Notes

¹ The Equations 3 and 4 may be considered as the solutions of intertemporal optimization problems by agents of the private sector.

² I also consider estimations using a more narrow measure of Consumer Price Index, frequently denoted as the Core CPI. Results are available upon request.

³ It is also found by Favero and Rovelli (2002) for the case of the United States.