Posts

• September 30, 2022

  Research Update - September 2022

  This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.

  Content Type(s): Staff research, Research newsletters
• September 28, 2022

  Bank of Canada response to detailed review report

  The Bank of Canada thanks the International Monetary Fund (IMF) for undertaking its thorough and thoughtful pilot review of the Bank under the new Central Bank Transparency Code (CBTC). We welcome the publication of this final review report by the IMF Mission Team and the associated recommendations.

  Content Type(s): Background materials
• September 28, 2022

  Bank of Canada welcomes IMF report following transparency review

  Media Relations Ottawa, Ontario

  The Bank of Canada today welcomed the publication by the International Monetary Fund (IMF) of its final report summarizing its pilot review of the Bank’s transparency practices.

  Content Type(s): Press, Press releases
• September 26, 2022

  CARR Meeting (September 26, 2022)

  Content Type(s): Meetings Source(s): Canadian Alternative Reference Rate Working Group

• Harnessing the benefit of state-contingent forward guidance

  Staff Analytical Note 2022-13 Vivian Chu, Yang Zhang

  A low level of the neutral rate of interest increases the likelihood that a central bank’s policy rate will reach its effective lower bound (ELB) in future economic downturns. In a low neutral rate environment, using an extended monetary policy toolkit including forward guidance helps address the ELB challenge. Using the Bank’s Terms-of-Trade Economic Model, we assess the benefits and limitations of a state-contingent forward guidance implemented within a flexible inflation targeting framework.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Central bank research, Economic models, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E2, E27, E3, E37, E4, E5, E52, E58

• Behavioral Learning Equilibria in New Keynesian Models

  Staff Working Paper 2022-42 Cars Hommes, Kostas Mavromatis, Tolga Özden, Mei Zhu

  We introduce behavioral learning equilibria (BLE) into DSGE models with boundedly rational agents using simple but optimal first order autoregressive forecasting rules. The Smets-Wouters DSGE model with BLE is estimated and fits well with inflation survey expectations. As a policy application, we show that learning requires a lower degree of interest rate smoothing.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Economic models, Inflation and prices, Monetary policy JEL Code(s): C, C1, C11, D, D8, D83, D84, E, E3, E6, E62

• How does the Bank of Canada’s balance sheet impact the banking system?

  Staff Analytical Note 2022-12 Daniel Bolduc-Zuluaga, Brad Howell, Grahame Johnson

  We examine how changes in the Bank of Canada’s balance sheet impact the banking system. Quantitative easing contributed to an increase in the size of the banking system’s balance sheet and an improvement in bank liquidity coverage ratios. Quantitative tightening is expected to partially reverse these impacts. The banking system will have to adjust its liquidity management strategy in response.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial stability, Monetary policy JEL Code(s): E, E5, E51, G, G2, G21, G23, G3, G32

• The Central Bank’s Dilemma: Look Through Supply Shocks or Control Inflation Expectations?

  Staff Working Paper 2022-41 Paul Beaudry, Thomas J. Carter, Amartya Lahiri

  When countries are hit by supply shocks, central banks often face the dilemma of either looking through such shocks or reacting to them to ensure that inflation expectations remain anchored. In this paper, we propose a tractable framework to capture this dilemma and then explore optimal policy under a range of assumptions about how expectations are formed.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Economic models, Inflation and prices, Monetary policy, Monetary policy and uncertainty, Monetary policy communications JEL Code(s): E, E1, E12, E2, E24, E3, E31, E5, E52, E58, E6, E65
• September 20, 2022

  Macroeconomics of the 2020s: What we’ve learned, and what’s to come

  Remarks Paul Beaudry University of Waterloo Faculty of Arts Distinguished Lecture in Economics Waterloo, Ontario

  Deputy Governor Paul Beaudry discusses the macroeconomic lessons we’ve learned during the COVID-19 pandemic, and what lies ahead to bring inflation back to target.

  Content Type(s): Press, Speeches and appearances, Remarks Topic(s): Coronavirus disease (COVID-19), Expectations, Inflation and prices, Inflation targets, International topics, Labour markets, Monetary policy implementation, Recent economic and financial developments

• Calculating Effective Degrees of Freedom for Forecast Combinations and Ensemble Models

  Staff Discussion Paper 2022-19 James Younker

  This paper derives a calculation for the effective degrees of freedom of a forecast combination under a set of general conditions for linear models. Computing effective degrees of freedom shows that the complexity cost of a forecast combination is driven by the parameters in the weighting scheme and the weighted average of parameters in the auxiliary models.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Econometric and statistical methods JEL Code(s): C, C0, C01, C02, C1, C13, C5, C50, C51, C52, C53