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We consider two trade-offs inherent to extraordinary forward guidance (EFG): potency versus flexibility, and the credibility of forward guidance versus the credibility of inflation targeting. We argue that the form of EFG used by the Bank of Canada during the COVID‑19 pandemic balanced both trade-offs relatively well.

How much of a CBDC would Canadian households want to hold, and what design features of a CBDC would they care about?

This paper presents two complementary approaches to estimating the appropriate quantity of settlement balances needed to effectively operate monetary policy under a floor system in Canada.

We use a new real-time database for Canada to study various output gap measures. This includes recently developed measures based on models incorporating many variables as inputs (and therefore requiring real-time data for many variables).

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.

The primary focus of this paper is to study conflict of interest in the brokerage market. Brokers face a conflict of interest when the commissions they receive from investors differ from the costs imposed by different trading venues.

This paper provides an extensive evaluation of the performance of quantile vector autoregression (QVAR) to forecast macroeconomic risk. Generally, QVAR outperforms standard benchmark models. Moreover, QVAR and QVAR augmented with factors perform equally well. Both are adequate for modeling macroeconomic risks.

The third strategy employed by the Bank when dealing with uncertainty is the consideration of appropriate simple reaction functions or "rules" for the setting of the policy interest rate. Since John Taylor's presentation of his much-discussed rule, research on simple policy rules has exploded. Simple rules have several advantages. In particular, they are easy to construct and communicate and are believed by some to be robust, in the sense of generating good results in a variety of economic models. This article provides an overview of the recent research regarding the usefulness and robustness of simple monetary policy rules, particularly in models of the Canadian economy. It also describes and explains the role of simple rules in the conduct of monetary policy in Canada.

Using almost two decades of detailed high-frequency data, we show how Canadian interest rates, the CAD/USD spot exchange rate, and stock market returns react to both US and domestic macro announcements. We find that Canadian macroeconomic announcements invoke greater responses in short-term yields, whereas US macroeconomic announcements play an increasingly important role in the yield movements of longer-term assets.

This background note explains the Bank’s official position on CBDC. It outlines the public policy, design, technology and risk management issues the Bank is considering as it builds its capacity to issue a CBDC in case it is needed in the future.