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

Douglas Laxton, Andrew Berg () and Philippe Karam

No 2006/081, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; headline inflation; transmission mechanism; demand shock; inflation rate; Monetary Policy; Forecasting and Simulation; Model construction and estimation; computational techniques; inflation equation; reaction function; forward-looking inflation term; expectations effect; excess demand; inflation target path; path Canada; output gap equation; Inflation; Output gap; Oil prices; Real exchange rates; Exchange rates; Global (search for similar items in EconPapers)
Pages: 69
Date: 2006-03-01
References: View complete reference list from CitEc
Citations: View citations in EconPapers (57)

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