Monetary Policy Implications of Rising Integration In this section we use the Bank of Canada’s macroeconomic policy model, ToTEM (for Terms-of-Trade Economic Model) to investigate how increased cross-border integration may affect monetary policy transmission.
ToTEM is a large-scale multi-sector dynamic stochastic general-equilibrium (DSGE) model that reflects the consensus view of the key macroeconomic linkages in the Canadian economy (Murchison and Rennison 2006; Dorich et al. 2013). It contains sufficient detail to allow us to illustrate the range of possible interactions between cross-border integration and monetary policy.