The Role of Economic Projections in Canadian Monetary Policy Formulation

Abstract

This paper describes the economic aspects of the monetary policy formulation process in Canada. It begins by outlining how the objectives of policy mesh with the mainstream view of how the economy functions. A key implication of this framework is that policy formulation must be forward-looking. The discussion then turns to the role played by economic projections in the policy process, and how the staff at the Bank of Canada develop those projections and monitor the economy. The paper concludes with a description of how unforseen developments are incorporated into the projections, and how those updates are translated by the staff into a revised set of policy options for the consideration of senior management.

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