On What States Do Prices Depend? Answers from Ecuador Staff Working Paper 2016-43 Craig Benedict, Mario J. Crucini, Anthony Landry In this paper, we argue that differences in the cost structures across sectors play an important role in firms’ decisions to adjust their prices. We develop a menu-cost model of pricing in which retail firms intermediate trade between producers and consumers. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Monetary policy transmission JEL Code(s): E, E3, E5, F, F3, F33
A Primer on Neo-Fisherian Economics Staff Analytical Note 2016-14 Robert Amano, Thomas J. Carter, Rhys R. Mendes Conventional models imply that central banks aiming to raise inflation should lower nominal rates and thus stimulate aggregate demand. However, several economists have recently challenged this conventional wisdom in favour of an alternative “neo-Fisherian’’ view under which higher nominal rates might in fact lead to higher inflation. Content Type(s): Staff research, Staff analytical notes Topic(s): Central bank research, Economic models, Inflation and prices, Interest rates, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E4, E5
Output Comovement and Inflation Dynamics in a Two-Sector Model with Durable Goods: The Role of Sticky Information and Heterogeneous Factor Markets Staff Working Paper 2016-36 Tomiyuki Kitamura, Tamon Takamura In a simple two-sector New Keynesian model, sticky prices generate a counterfactual negative comovement between the output of durable and nondurable goods following a monetary policy shock. We show that heterogeneous factor markets allow any combination of strictly positive price stickiness to generate positive output comovement. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Monetary policy transmission JEL Code(s): E, E3, E31, E32, E5, E52
Relationships in the Interbank Market Staff Working Paper 2016-33 Jonathan Chiu, Cyril Monnet In the interbank market, banks will sometimes trade below the central bank's deposit rate. We explain this anomaly using a theory based on market frictions and relationship lending. Content Type(s): Staff research, Staff working papers Topic(s): Interest rates, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E4, E5
Housing Market Dynamics and Macroprudential Policy Staff Working Paper 2016-31 Gabriel Bruneau, Ian Christensen, Césaire Meh We perform an analysis to determine how well the introduction of a countercyclical loanto- value (LTV) ratio can reduce household indebtedness and housing price fluctuations compared with a monetary policy rule augmented with house price inflation. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Financial stability, Housing, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E3, E31, E4, E42, H, H2, H23
May 16, 2016 Estimating Canada’s Effective Lower Bound Bank of Canada Review - Spring 2016 Jonathan Witmer, Jing Yang Recently, the Bank of Canada has estimated the effective lower bound (ELB) on its policy interest rate to be about -50 basis points. This article outlines the analysis that underpins that estimate by quantifying the costs of storing and using cash in Canada. It also explores how some international markets have adapted to negative interest rates, issues surrounding their implementation, as well as their transmission to other interest rates in the economy. Finally, it discusses theoretical ideas on how the ELB could be reduced further. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Monetary policy framework, Monetary policy implementation, Monetary policy transmission JEL Code(s): D, D5, D53, E, E4, E43, E5, E52, E58
May 16, 2016 A New Era of Central Banking: Unconventional Monetary Policies Bank of Canada Review - Spring 2016 Eric Santor, Lena Suchanek Central banks can implement unconventional monetary policy measures to provide additional easing when policy interest rates come close to their lower limit. To date, the international experience with tools such as quantitative easing and negative interest rates has been largely positive. Central banks may also use several such measures simultaneously, with often mutually reinforcing effects. Yet, unconventional tools are also subject to potential limits, and the costs associated with these measures could rise with extensive and prolonged use. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Interest rates, International topics, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E5, E52, E58, E6, E61, E65
Tractable Term Structure Models Staff Working Paper 2015-46 Bruno Feunou, Jean-Sébastien Fontaine, Anh Le, Christian Lundblad We introduce a new framework that facilitates term structure modeling with both positive interest rates and flexible time-series dynamics but that is also tractable, meaning amenable to quick and robust estimation. Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Interest rates, International financial markets, International topics, Monetary policy and uncertainty, Monetary policy transmission JEL Code(s): G, G1, G12
Forward Guidance at the Effective Lower Bound: International Experience Staff Discussion Paper 2015-15 Karyne B. Charbonneau, Lori Rennison Forward guidance is one of the policy tools that a central bank can implement if it seeks to provide additional monetary stimulus when it is operating at the effective lower bound (ELB) on interest rates. It became more widely used during and after the global financial crisis. Content Type(s): Staff research, Staff discussion papers Topic(s): Monetary policy and uncertainty, Monetary policy communications, Monetary policy framework, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E4, E43, E5, E52, E58, E6
Quantitative Easing as a Policy Tool Under the Effective Lower Bound Staff Discussion Paper 2015-14 Abeer Reza, Eric Santor, Lena Suchanek This paper summarizes the international evidence on the performance of quantitative easing (QE) as a monetary policy tool when conventional policy rates are constrained by the effective lower bound (ELB). A large body of evidence suggests that expanding the central bank’s balance sheet through large-scale asset purchases can provide effective stimulus under the ELB. Content Type(s): Staff research, Staff discussion papers Topic(s): Central bank research, International topics, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E5, E52, E58, E6, E61, E65, N, N1, N10