Bank of Canada working papers are theoretical or empirical works-in-progress on subjects in economics and finance. The views expressed in this paper are those of the authors. No responsibility for them should be attributed to the Bank of Canada. Abstract This paper studies the welfare costs and the redistributive effects of inflation in the presence of idiosyncratic liquidity risk, in a micro-f...

I develop an extension of the standard New Keynesian model to monetary policy regime switching to study the impact of uncertainty around the future inflation target. First, I fully characterize how the responses of current inflation and output to inflation target uncertainty depend on the monetary policy rule. If monetary policy is passive, inflation may increase far beyond the anticipated incr...

Making capital and investment is the main driving forces of economic development. Based on the investment sensitivity to the changes of some of macro-economic variables and risk and uncertainty, the present study evaluated the effective factors on investment in private sector in Iran during 1980-2007. At first, the uncertainty variables of real informal exchange rate, nominal interest rate and ...

This paper studies the implications of certain kinds of uncertainty for monetary policy. It first describes the optimum policy rule in a simple model of the transmission mechanism as in Ball and Svensson. It then examines how this rule ought to be modified when there is uncertainty about the parameters, about the time lags, or about the nature of shocks. The paper also discusses the case of a s...

T here is always uncertainty about the soundness of an economic model’s structure and parameters. Therefore, central banks normally face with uncertainty about the key economic explanatory relationships. So, policymaker should take into account the uncertainty in formulating monetary policies. The present study is aimed to examine robust optimal monetary policy under uncertainty, by ...

Recent studies by Gali and Gertler (1999) and Sbordone (2002) conclude that a theoretical inflation series implied by the forward-looking New Keynesian pricing model of Calvo (1983) fits post-1960 U.S. inflation closely. Their theoretical inflation series is conditional on (i) a reduced-form forecasting process for real marginal cost; and (ii) the calibration of the structural pricing equation ...

Uncertainty about how the economy will evolve is a key concern for households and firms. People’s views on how likely it is that the economy will be growing, stagnating, or in recession help shape the actions they ncertainty about how the economy will evolve is a key concern for households and firms. People’s views on how likely it is that the economy will be growing, stagnating, or in recessio...

This paper examines the relationship between inflation and wage indexation in the postwar U.S. using data on the prevalence of cost-of-living adjustments in major collective bargaining agreements. I find that increases in inflation precede increases in wage indexation but reductions in inflation do not precede reductions in wage indexation. There is virtually no evidence that wage indexation af...