Macroeconomic Models and Policy-Making at the Bank of Canada

Abstract: Operating in a flexible exchange rate regime, and managed by professional economists with a long experience within the institution, the Bank of Canada is one central bank where model-based projections play a central role in shaping and informing the internal deliberations about the formulation and conduct of monetary policy. As a result, the needs of policy makers are a foremost consideration for staff that develop and use models. This chapter describes the trends in policy formulation and model development at the Bank of Canada over the last 25 years, emphasizing the interactions between them, and explains the move away from large-scale disaggregated models towards a smaller, more focused model that can be used for both policy analysis and economic projections.