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Many central banks are considering issuing a central bank digital currency (CBDC). This would introduce a new policy tool—interest on CBDC. We investigate how this new tool would interact with traditional monetary policy tools, such as the interest on central bank reserves.

The paper reviews evidence from the economic literature on the nature of the relationship between excess capacity and inflation, better known as the Phillips curve. In particular, we examine the linearity of this relationship. This is an important issue in the current economic context in which advanced economies are approaching or exceed their potential output.

Governor Tiff Macklem discusses the Bank’s latest interest rate announcement and explains the uneven impact that the COVID-19 pandemic is having on different sectors and people.

Bank of Canada Governor Tiff Macklem discusses how artificial intelligence could impact the economy, and outlines some of the implications for monetary policy.

During and after the Great Recession of 2008–09, conventional monetary policy in the United States and many other advanced economies was constrained by the effective lower bound (ELB) on nominal interest rates. Several central banks implemented large-scale asset purchase (LSAP) programs, more commonly known as quantitative easing or QE, to provide additional monetary stimulus.

The premise that exchange rate pass-through has declined is critically reassessed; intensity in the negative feedback process between financial sector developments and the real economy during the recent global crisis is examined; update on past decade’s changing trends in debt issuance in Canada relative to those in other capital markets.

For several decades, the prices of services have been rising more rapidly than the prices of goods in Canada and the other major industrialized countries. In 2002, this gap between the growth rates of these two components of the consumer price index (CPI) widened considerably, leading researchers to ask if this was the beginning of a trend. Analysis reveals, however, that the gap is based on short-term dynamics and that it appears to be independent of the trend in the development of the overall price level. Evidence also shows that the gap is eventually reabsorbed. The authors examine a number of potential causes for the prices of services to rise faster than those of goods. These include the more rapid pace of productivity growth in the goods sector, the greater openness of goods to foreign trade, and stronger growth in the demand for services.

From 2011 to 2019, inflation in Canada and advanced economies usually registered below inflation targets, spurring the debate on whether the inflation process has changed. This paper highlights emerging questions that will influence the conduct of monetary policy in Canada in the near term.

The decline in safe real interest rates over the past three decades has reignited discussions on the neutral real interest rate, known as R*. We address the determinants and estimation methods of R*, as well as the factors influencing its decline and its future trajectory.