E - Macroeconomics and Monetary Economics
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Addressing Household Indebtedness: Monetary, Fiscal or Macroprudential Policy?
In this paper, we build a dynamic stochastic general-equilibrium model with housing and household debt, and compare the effectiveness of monetary policy, housing-related fiscal policy, and macroprudential regulations in reducing household indebtedness. -
International House Price Cycles, Monetary Policy and Risk Premiums
Using a panel logit framework, the paper provides an estimate of the likelihood of a house price correction in 18 OECD countries. The analysis shows that a simple measure of the degree of house price overvaluation contains a lot of information about subsequent price reversals. -
The Impact of U.S. Monetary Policy Normalization on Capital Flows to Emerging-Market Economies
The Federal Reserve’s path for withdrawal of monetary stimulus and eventually increasing interest rates could have substantial repercussions for capital flows to emerging-market economies (EMEs). -
Targeting Inflation from Below - How Do Inflation Expectations Behave?
Inflation targeting (IT) had originally been introduced as a device to bring inflation down and stabilize it at low levels. Given the current environment of persistently weak inflation in many advanced economies, IT central banks must now bring inflation up to target. -
The Effect of the Federal Reserve’s Tapering Announcements on Emerging Markets
The Federal Reserve’s quantitative easing (QE) program has been accompanied by a flow of funds into emerging-market economies (EMEs) in search of higher returns. -
November 13, 2014
Recent Developments in Experimental Macroeconomics
This article describes experimental economics, in general, and new developments in experimental macroeconomics, in particular. The approach has a clear niche in providing evidence on economic phenomena that cannot be observed directly or that are difficult to measure. Experimental work conducted by Bank of Canada economists has shed light on a number of issues important to monetary policy, such as the relative efficacy between price-level and inflation targeting, and the nature of inflation expectations formation. -
November 13, 2014
Should Forward Guidance Be Backward-Looking?
When constrained by the zero lower bound, some central banks have communicated a threshold that must be met before short-term interest rates would be permitted to rise. Simulation results for Canada show that forward guidance that is conditional on achieving a price-level threshold can theoretically raise demand and inflation expectations by significantly more than unemployment thresholds. This superior performance is attributable to the fact that the price-level threshold depends on past inflation outcomes. In practice, however, history-dependent thresholds such as this might be more challenging for central banks to communicate. -
November 13, 2014
Spillover Effects of Quantitative Easing on Emerging-Market Economies
While quantitative easing (QE) in the United States likely increased capital flows to emerging-market economies (EMEs), putting upward pressure on asset prices and exchange rates, diverging fundamentals between advanced economies and EMEs were also important drivers. Evidence suggests that the benefits of QE to EMEs, in higher global demand and increased confidence, appear to outweigh the costs. When advanced economies begin to normalize monetary policy, the best defence for EMEs against any potential instability is likely to be further strengthening of their macroeconomic and financial policy frameworks. -
November 13, 2014
Firm Strategy, Competitiveness and Productivity: The Case for Canada
At a time when the Bank is expecting a rotation of demand toward exports and investment, and transformative global trends are placing increasing emphasis on innovation, technology and organizational learning, an understanding of the competitiveness strategies of Canadian firms and the factors affecting them has become particularly relevant. This article summarizes findings from a Bank of Canada survey of 151 firms designed to extract signals on elements of firm strategy and organizational capital in order to help inform the macroeconomic outlook.