A Horse Race of Monetary Policy Regimes: An Experimental Investigation Staff working paper 2022-33 Olena Kostyshyna, Luba Petersen, Jing Yang How should central banks design monetary policy in stable times and during recessions? We run a horse race between five monetary policy frameworks in an experimental laboratory to assess how well the different approaches can manage the public’s expectations and stabilize the economy. Content Type(s): Staff research, Staff working papers JEL Code(s): C, C9, D, D8, D84, E, E5, E52, E58 Research Theme(s): Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission, Monetary policy tools and implementation
The Rise of Non-Regulated Financial Intermediaries in the Housing Sector and its Macroeconomic Implications Staff working paper 2017-36 Hélène Desgagnés I examine the impact of non-regulated lenders in the mortgage market using a dynamic stochastic general equilibrium (DSGE) model. My model features two types of financial intermediaries that differ in three ways: (i) only regulated intermediaries face a capital requirement, (ii) non-regulated intermediaries finance themselves by selling securities and cannot accept deposits, and (iii) non-regulated intermediaries face a more elastic demand. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E3, E32, E4, E44, E47, E6, E60, G, G2, G21, G23, G28 Research Theme(s): Financial system, Financial institutions and intermediation, Financial stability and systemic risk, Household and business credit, Models and tools, Economic models
May 13, 1997 Capacity constraints, price adjustment, and monetary policy Bank of Canada Review - Spring 1997 Tiff Macklem The short-run Phillips curve describes a positive short-run relationship between the level of economic activity and inflation. When the level of demand in the economy as a whole runs ahead of the level of output that the economy can supply in the short run, price pressures increase and inflation rises. This article reviews the origins of the short-run Phillips curve with particular emphasis on the long-standing idea that the shape of this curve may be non-linear, with inflation becoming more sensitive to changes in output when the cycle of economic activity is high than when it is low. This type of non-linearity in the short-run Phillips curve, which is typically motivated by the effects of capacity constraints that limit the ability of the economy to expand in the short run, has recently attracted renewed attention. The article surveys recent research that finds some evidence of this type of non-linearity in the Phillips curve in Canada and considers the potential implications for monetary policy. Content Type(s): Publications, Bank of Canada Review articles
May 5, 2015 Liquid Markets for a Solid Economy Remarks Carolyn A. Wilkins Chambre de commerce du Montréal métropolitain Montréal, Quebec Senior Deputy Governor Wilkins discusses funding and market liquidity, and announces consultations on the Bank’s market operations and emergency lending frameworks. Content Type(s): Press, Speeches and appearances, Remarks
November 15, 2017 Embracing Uncertainty in the Conduct of Monetary Policy Remarks Carolyn A. Wilkins Money Marketeers of New York University New York, New York Senior Deputy Governor Carolyn A. Wilkins explains how uncertainty is factored into monetary policy decisions. Content Type(s): Press, Speeches and appearances, Remarks Subject(s): Monetary policy, Economic models, Economy/Economic growth, Inflation targeting framework
A Framework for Analyzing Monetary Policy in an Economy with E-money Staff working paper 2019-1 Yu Zhu, Scott Hendry This paper considers an economy where central-bank-issued fiat money competes with privately issued e-money. We study a policy-setting game between the central bank and the e-money issuer and find (1) the optimal monetary policy of the central bank depends on the policy of the private issuer and may deviate from the Friedman rule; (2) multiple equilibria may exist; (3) when the economy approaches a cashless state, the central bank’s optimal policy improves the market power of the e-money issuer and can lead to a discrete decrease in welfare and a discrete increase in inflation; and (4) first best cannot be achieved. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E5, E52 Research Theme(s): Monetary policy, Monetary policy framework and transmission, Monetary policy tools and implementation, Money and payments, Digital assets and fintech
Interbank Asset-Liability Networks with Fire Sale Management Staff working paper 2020-41 Zachary Feinstein, Grzegorz Halaj Raising liquidity when funding is stressed creates pressure on the financial market. Liquidating large quantities of assets depresses their prices and may amplify funding shocks. How do banks weathering a funding crisis contribute to contagion risk? Content Type(s): Staff research, Staff working papers JEL Code(s): C, C6, C62, C63, C7, C72, G, G0, G01, G1, G11 Research Theme(s): Financial markets and funds management, Market functioning, Financial system, Financial institutions and intermediation, Financial stability and systemic risk
August 16, 2012 Global Risk Premiums and the Transmission of Monetary Policy Bank of Canada Review - Summer 2012 Gregory Bauer, Antonio Diez de los Rios An important channel in the transmission of monetary policy is the relationship between the short-term policy rate and long-term interest rates. Using a new term-structure model, the authors show that the variation in long-term interest rates over time consists of two components: one representing investor expectations of future policy rates, and another reflecting a term-structure risk premium that compensates investors for holding a risky asset. The time variation in the term-structure risk premium is countercyclical and largely determined by global macroeconomic conditions. As a result, long-term rates are pushed up during recessions and down during times of expansion. This is an important phenomenon that central banks need to take into account when using short-term rates as a policy tool. Content Type(s): Publications, Bank of Canada Review articles JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G12, G15
Total factor productivity growth projection for Canada: A sectoral approach Staff analytical note 2024-12 Dany Brouillette, Tessa Devakos, Raven Wheesk We propose a tool that decomposes TFP growth into sectoral contributions. The analysis incorporates three structural factors—digitalization, aging and climate change policies—and measures their contributions. Overall, we expect that aggregate TFP growth will slow down in the 2020s below both its historical average and the average from the 2010s. Content Type(s): Staff research, Staff analytical notes JEL Code(s): D, D2, D24, J, J1, J11, O, O3, O33, Q, Q5, Q54 Research Theme(s): Monetary policy, Real economy and forecasting, Structural challenges, Climate change, Demographics and labour supply, Digitalization and productivity
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