E52 - Monetary Policy

• Changes in Monetary Regimes and the Identification of Monetary Policy Shocks: Narrative Evidence from Canada

  Staff Working Paper 2017-39 Julien Champagne, Rodrigo Sekkel

  We use narrative evidence along with a novel database of real-time data and forecasts from the Bank of Canada's staff economic projections from 1974 to 2015 to construct a new measure of monetary policy shocks and estimate the effects of monetary policy in Canada.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Central bank research, Econometric and statistical methods, Exchange rate regimes, Inflation and prices, Inflation targets, Interest rates, Monetary policy, Monetary policy framework JEL Code(s): E, E3, E31, E32, E4, E43, E5, E52, E58

• Downward Nominal Wage Rigidity in Canada: Evidence Against a “Greasing Effect”

  Staff Working Paper 2017-31 Joel Wagner

  The existence of downward nominal wage rigidity (DNWR) has often been used to justify a positive inflation target. It is traditionally assumed that positive inflation could “grease the wheels” of the labour market by putting downward pressure on real wages, easing labour market adjustments during a recession.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets, Labour markets JEL Code(s): E, E2, E24, E5, E52

• Quantitative Easing and Long‐Term Yields in Small Open Economies

  Staff Working Paper 2017-26 Antonio Diez de los Rios, Maral Shamloo

  We compare the Federal Reserve’s asset purchase programs with those implemented by the Bank of England and the Swedish Riksbank, and the Swiss National Bank’s reserve expansion program.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Interest rates, Monetary policy JEL Code(s): E, E4, E43, E5, E52, E58, G, G1, G12

• Understanding Monetary Policy and its Effects: Evidence from Canadian Firms Using the Business Outlook Survey

  Staff Working Paper 2017-24 Matthieu Verstraete, Lena Suchanek

  This paper shows (i) that business sentiment, as captured by survey data, matters for monetary policy decisions in Canada, and (ii) how business perspectives are affected by monetary policy shocks. Measures of business sentiment (soft data) are shown to have systematic explanatory power for monetary policy decisions over and above typical Taylor rule variables.

  Content Type(s): Staff research, Staff working papers Topic(s): Firm dynamics, Interest rates, Monetary policy transmission JEL Code(s): D, D2, D22, E, E4, E44, E5, E52

• What Explains Month-End Funding Pressure in Canada?

  Staff Discussion Paper 2017-9 Christopher S. Sutherland

  The Canadian overnight repo market persistently shows signs of latent funding pressure around month-end periods. Both the overnight repo rate and Bank of Canada liquidity provision tend to rise in these windows. This paper proposes three non-mutually exclusive hypotheses to explain this phenomenon.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Financial markets, Interest rates, Monetary policy framework, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E4, E41, E43, E5, E52, E58, F, F3, F36, G, G1, G14, G15, G2, G21

• Should Central Banks Worry About Nonlinearities of their Large-Scale Macroeconomic Models?

  Staff Working Paper 2017-21 Vadym Lepetyuk, Lilia Maliar, Serguei Maliar

  How wrong could policymakers be when using linearized solutions to their macroeconomic models instead of nonlinear global solutions?

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Economic models JEL Code(s): C, C6, C61, C63, C68, E, E3, E31, E5, E52
• May 11, 2017

  Unconventional Monetary Policy: The Perspective of a Small Open Economy

  Bank of Canada Review - Spring 2017 Jean-Sébastien Fontaine, Lena Suchanek, Jing Yang

  How do unconventional monetary policies like quantitative easing and negative interest rates affect domestic financial conditions and the broader economy in small open econo-mies, such as Canada? These policies are effective in depreciating the exchange rate in small open economies, while lower interest rates are also passed through to the economy, albeit only partially. When conventional monetary policy is close to its limits, fiscal policy may be a more important complement to monetary policy in a small economy, particularly if global demand for safe assets compresses long-term interest rates.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Interest rates, Monetary policy framework, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E5, E52, E58, E6, E61, E65

• Downward Nominal Wage Rigidity Meets the Zero Lower Bound

  Staff Working Paper 2017-16 Robert Amano, Stefano Gnocchi

  We add downward nominal wage rigidity to a standard New Keynesian model with sticky prices and wages, where the zero lower bound on nominal interest rates is allowed to bind. We find that wage rigidity not only reduces the frequency of zero bound episodes but also mitigates the severity of corresponding recessions.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets, Labour markets, Monetary policy framework JEL Code(s): E, E2, E24, E3, E32, E5, E52

• Monetary Policy, Private Debt and Financial Stability Risks

  Staff Working Paper 2016-59 Gregory Bauer, Eleonora Granziera

  Can monetary policy be used to promote financial stability? We answer this question by estimating the impact of a monetary policy shock on private-sector leverage and the likelihood of a financial crisis. Impulse responses obtained from a panel VAR model of 18 advanced countries suggest that the debt-to-GDP ratio rises in the short run following an unexpected tightening in monetary policy.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial stability, Monetary policy, Monetary policy transmission JEL Code(s): C, C2, C21, C23, E, E5, E52, E58

• Quantitative Easing in a Small Open Economy: An International Portfolio Balancing Approach

  Staff Working Paper 2016-55 Serdar Kabaca

  This paper studies the effects of quantitative easing (QE) in a small open economy dynamic stochastic general-equilibrium model with international portfolio balancing. Portfolios are classified as imperfectly substitutable short-term and long-term subportfolios, each including domestic and foreign bonds.

  Content Type(s): Staff research, Staff working papers Topic(s): International topics, Monetary policy transmission JEL Code(s): E, E5, E52, F, F4, F41