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

69 Pages Posted: 17 May 2006

See all articles by Andrew Berg

Andrew Berg

International Monetary Fund (IMF) - Developing Country Studies Division

Philippe D. Karam

International Monetary Fund (IMF)

Douglas Laxton

International Monetary Fund (IMF) - Research Department

Date Written: March 2006

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: Monetary Policy, Forecasting and Simulation, Model construction and estimation, computation techniques

JEL Classification: E52, E47, C51, C63

Suggested Citation

Berg, Andrew and Karam, Philippe and Laxton, Douglas, Practical Model-Based Monetary Policy Analysis: A How-To Guide (March 2006). IMF Working Paper, Vol. , pp. 1-69, 2006. Available at SSRN: https://ssrn.com/abstract=901872

Andrew Berg (Contact Author)

International Monetary Fund (IMF) - Developing Country Studies Division ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8843 (Phone)
202-589-8843 (Fax)

Philippe Karam

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Douglas Laxton

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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