Canadian Monetary Policy: Will the Checklist Approach Ever Get Us to Price Stability?

The purpose of this paper is to investigate whether the checklist approach that the Bank of Canada has followed in one way or another over the last two decades is likely to lead us to the stated objective of price stability. The analysis of Canadian monetary policy is performed through the estimation of a Bayesian VAR model of a set of important Canadian macroeconomic variables in their international context. To estimate the model the authors borrowed form C. Sims (1989), but they also transposed his methodology to take into account Canadian features. The results suggest that the exchange rate has been high on the checklist of the Bank of Canada over the years and that, rather, the Bank should concentrate its attention on (broad) monetary aggregates if it really wants to deliver price stability.