Fiscal and Monetary Stabilization Policy at the Zero Lower Bound: Consequences of Limited Foresight Staff working paper 2021-51 Michael Woodford, Yinxi Xie How do outcomes of monetary and fiscal stabilization policies at the zero lower bound change when decision makers have finite planning horizons in the economy? We explore the effects of limited foresight on policy tools and the interaction between monetary and fiscal policy. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E5, E52, E6, E63, E7 Research Theme(s): Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission, Monetary policy tools and implementation, Real economy and forecasting
November 18, 2001 A New Measure of Core Inflation Bank of Canada Review - Autumn 2001 Tiff Macklem While the Bank of Canada's inflation-control target is specified in terms of the rate of increase in the total consumer price index, the Bank uses a measure of trend or "core" inflation as a short-term guide for its monetary policy actions. When the inflation targets were renewed in May 2001, the Bank announced that it was adopting a new measure of core inflation. This measure excludes the eight most volatile components of the CPI and adjusts the remaining components for the effect of changes in indirect taxes. In this article, the author discusses the definition of the new measure of core inflation and describes some of its advantages relative to the previous measure. He notes that the new measure has a firmer statistical basis, has a better correspondence with economic theory, and does a better job of predicting future changes in overall inflation. While the new measure has these advantages, the Bank will continue to monitor a broad range of indicators when assessing the likely future path for inflation. Content Type(s): Publications, Bank of Canada Review articles
The Price Impact of Canadian Retaliatory Tariffs Staff working paper 2026-22 Alberto Cavallo, Olena Kostyshyna, Oleksiy Kryvtsov, Matías Vieyra How do import tariffs affect retail prices? We combine daily product-level posted prices from seven major Canadian retailers with product-level tariff exposure to estimate tariff effects. Prices of tariffed goods rose gradually, peaking at 6% after three months, implying pass-through of roughly one quarter of the 25% tariff. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E3, E31, E5, E52, F, F1, F13 Research Theme(s): Monetary policy, Inflation dynamics and pressures
March 25, 2022 A world of difference: Households, the pandemic and monetary policy Remarks (delivered virtually) Sharon Kozicki Federal Reserve Bank of San Francisco Macroeconomics and Monetary Policy Conference San Francisco, California Bank of Canada Deputy Governor Sharon Kozicki discusses how differences among households affect economic outcomes, how shocks can have important uneven effects across households, and why these things matter for monetary policy. Content Type(s): Press, Speeches and appearances, Remarks Subject(s): Monetary policy, Economic models, Economy/Economic growth, Inflation, Inflation targeting framework
The Case of Serial Disappointment Staff analytical note 2016-10 Justin-Damien Guénette, Nicholas Labelle, Martin Leduc, Lori Rennison Similar to those of other forecasters, the Bank of Canada’s forecasts of global GDP growth have shown persistent negative errors over the past five years. This is in contrast to the pre-crisis period, when errors were consistently positive as global GDP surprised to the upside. All major regions have contributed to the forecast errors observed since 2011, although the United States has been the most persistent source of notable errors. Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E2, E27, E6, E66, F, F0, F01 Research Theme(s): Models and tools, Economic models, Monetary policy, Real economy and forecasting
The Role of Corporate Saving over the Business Cycle: Shock Absorber or Amplifier? Staff working paper 2018-59 Xiaodan Gao, Shaofeng Xu We document countercyclical corporate saving behavior with the degree of countercyclicality varying nonmonotonically with firm size. We then develop a dynamic stochastic general equilibrium model with heterogeneous firms to explain the pattern and study its implications for business cycles. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E20, E22, E3, E32, G, G3, G31, G32 Research Theme(s): Financial system, Financial institutions and intermediation, Household and business credit, Models and tools, Economic models, Monetary policy, Real economy and forecasting
Occasionally Binding Constraints in Large Models: A Review of Solution Methods Staff discussion paper 2021-5 Jonathan Swarbrick Solving macroeconomic models is difficult. One challenge is the occasionally binding constraint of the zero lower bound on nominal interest rates. This paper reviews various ways to solve models that include this feature. Content Type(s): Staff research, Staff discussion papers JEL Code(s): C, C6 Research Theme(s): Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission
Challenges in Implementing Worst-Case Analysis Staff working paper 2018-47 Jon Danielsson, Lerby Ergun, Casper G. de Vries Worst-case analysis is used among financial regulators in the wake of the recent financial crisis to gauge the tail risk. We provide insight into worst-case analysis and provide guidance on how to estimate it. We derive the bias for the non-parametric heavy-tailed order statistics and contrast it with the semi-parametric extreme value theory (EVT) approach. Content Type(s): Staff research, Staff working papers JEL Code(s): C, C0, C01, C1, C14, C5, C58 Research Theme(s): Financial system, Financial stability and systemic risk, Models and tools, Econometric, statistical and computational methods
February 21, 2013 The U.S. Recovery from the Great Recession: A Story of Debt and Deleveraging Bank of Canada Review - Winter 2012-2013 Brady Lavender, Nicolas Parent The U.S. recovery from the Great Recession has been slow relative to other postwar-era recoveries in the United States. Encouraged by loose lending standards in the pre-crisis period, U.S. households took on unsustainable amounts of debt, making them vulnerable to adverse shocks. Subsequently, a considerable drop in asset prices forced households to repair their balance sheets. While there has been progress in household deleveraging, the government sector now needs to delever, which will restrain growth over the next few years. Content Type(s): Publications, Bank of Canada Review articles JEL Code(s): E, E2, E21, E6, E60
November 17, 2011 Liquidity Provision and Collateral Haircuts in Payments Systems Bank of Canada Review - Autumn 2011 James Chapman, Jonathan Chiu, Miguel Molico Central banks play a pivotal role in well-functioning payments systems by providing liquidity via collateralized lending. This article discusses the role of collateral and haircut policy in central bank lending, as well as the distinguishing features of the central bank’s policy relative to private sector practices. It presents a model that explicitly incorporates the unique role of central banks in the payments system and argues that central banks must consider how their haircut policies affect the relative price and liquidity of assets, the market’s asset allocation, and the likelihood of participants to default. Furthermore, under extraordinary circumstances, there is a rationale for the central bank to temporarily reduce haircuts or broaden the list of eligible collateral to mitigate the shortage of liquidity in the market. Content Type(s): Publications, Bank of Canada Review articles