E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit

• May 16, 2016

  Monetary Policy Frameworks: Recent International Developments

  Bank of Canada Review - Spring 2016 Robert Fay, Kristina Hess

  Inflation-targeting frameworks have remained relatively stable over the past few years despite significant challenges, including prolonged low inflation, a large negative commodity price shock and rising financial stability concerns in some economies. The tools used by central banks have, however, evolved substantially. This article provides a survey of the developments in the inflation-targeting frameworks of 10 central banks in advanced economies that correspond to the three research areas of the Bank of Canada’s 2016 renewal: the level of the inflation target, the measurement of core inflation and financial stability considerations in the formulation of monetary policy.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation targets, International topics, Monetary policy framework JEL Code(s): E, E5, E52, E58

• Should Monetary Policy Lean Against Housing Market Booms?

  Staff Working Paper 2016-19 Sami Alpanda, Alexander Ueberfeldt

  Should monetary policy lean against housing market booms? We approach this question using a small-scale, regime-switching New Keynesian model, where housing market crashes arrive with a logit probability that depends on the level of household debt.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial stability, Housing, Monetary policy framework JEL Code(s): E, E4, E44, E5, E52, G, G0, G01

• A Bitcoin Standard: Lessons from the Gold Standard

  Staff Working Paper 2016-14 Warren E. Weber

  This paper imagines a world in which countries are on the Bitcoin standard, a monetary system in which all media of exchange are Bitcoin or are backed by it. The paper explores the similarities and differences between the Bitcoin standard and the gold standard and describes the media of exchange that would exist under the Bitcoin standard.

  Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech, Exchange rates, Financial services, Inflation and prices JEL Code(s): E, E4, E41, E42, E5, E58

• Wait a Minute: The Efficacy of Discounting versus Non-Pecuniary Payment Steering

  Staff Working Paper 2016-8 Angelika Welte

  Merchants who accept credit cards face payment processing fees. In most countries, the no-surcharge rule prohibits them from using surcharges to pass these fees on to customers.

  Content Type(s): Staff research, Staff working papers Topic(s): Bank notes, Market structure and pricing, Payment clearing and settlement systems JEL Code(s): D, D1, D12, E, E5, E58, G, G2, G28

• Understanding Firms’ Inflation Expectations Using the Bank of Canada’s Business Outlook Survey

  Staff Working Paper 2016-7 Simon Richards, Matthieu Verstraete

  Inflation expectations are a key determinant of actual and future inflation and thus matter for the conduct of monetary policy. We study how firms form their inflation expectations using quarterly firm-level data from the Bank of Canada’s Business Outlook Survey, spanning the 2001 to 2015 period.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Credibility, Econometric and statistical methods, Firm dynamics, Inflation and prices, Inflation targets, Monetary policy framework JEL Code(s): C, C1, C2, C25, D, D2, D21, D8, D84, E, E3, E31, E5, E52, E58

• Monetary Commitment and the Level of Public Debt

  Staff Working Paper 2016-3 Stefano Gnocchi, Luisa Lambertini

  We analyze the interaction between committed monetary policy and discretionary fiscal policy in a model with public debt, endogenous government expenditures, distortive taxation and nominal rigidities.

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

• The Complex Adjustment of the Canadian Economy to Lower Commodity Prices

  Staff Analytical Note 2016-1 Julien Champagne, Nikita Perevalov, Hope Pioro, Dany Brouillette, Andrew Agopsowicz

  In this analytical note, we provide a comprehensive assessment of the complex structural adjustment facing the Canadian economy following the commodity price decline since mid-2014. We quantify separately the impacts coming from the commodity sector restructuring and the broader effect of significantly lower terms of trade.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Exchange rates, Labour markets, Potential output, Recent economic and financial developments JEL Code(s): E, E1, E17, E2, E27, E5, E52, J, J2, Q, Q0, Q00
• December 15, 2015

  Indebted Households and Potential Vulnerabilities for the Canadian Financial System: A Microdata Analysis

  Financial System Review - December 2015 Gino Cateau, Tom Roberts, Jie Zhou

  Over the past decade, an increasing proportion of households in Canada have become highly indebted relative to their income. These highly indebted households now hold one-fifth of total Canadian household debt.Simulations suggest that this greater degree of household indebtedness could exacerbate the impact of shocks to income and interest rates relative to the pre-crisis period. However, an assessment of the vulnerability of the Canadian financial system should, among other factors, account for the ability of Canadian financial institutions to withstand losses from the household sector.

  Content Type(s): Publications, Financial System Review articles Topic(s): Credit and credit aggregates, Financial stability, Housing, Recent economic and financial developments JEL Code(s): D, D1, D14, E, E5, E51

• Estimating Canada’s Effective Lower Bound

  Staff Analytical Note 2015-2 Jonathan Witmer, Jing Yang

  In 2009, the Bank of Canada set its effective lower bound (ELB) at 25 basis points (bps). Given the recent experience of Sweden, Denmark, Switzerland and the euro area with negative interest rates, we examine the economics of negative interest rates and suggest that cash storage costs are the source of a negative lower bound on interest rates.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Central bank research, Monetary policy framework, Monetary policy implementation JEL Code(s): D, D5, D53, E, E4, E41, E43, E5, E58

• On the Essentiality of E-Money

  Staff Working Paper 2015-43 Jonathan Chiu, Tsz-Nga Wong

  Recent years have witnessed the advances of e-money systems such as Bitcoin, PayPal and various forms of stored-value cards. This paper adopts a mechanism design approach to identify some essential features of different payment systems that implement and improve the constrained optimal resource allocation.

  Content Type(s): Staff research, Staff working papers Topic(s): Bank notes, Digital currencies and fintech, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E58, L, L5, L51