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

Author/Editor:

Douglas Laxton ; Andrew Berg ; Philippe D Karam

Publication Date:

March 1, 2006

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2006/081

Subject:

English

Publication Date:

March 1, 2006

ISBN/ISSN:

9781451863413/1018-5941

Stock No:

WPIEA2006081

Pages:

69

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