The uneven economic consequences of COVID 19: A structural analysis Staff Analytical Note 2021-17 Martin Kuncl, Austin McWhirter, Alexander Ueberfeldt Using a structural model, we study the economic consequences of the COVID-19 shock. The uneven consequences, such as higher unemployment among young households, amplify the negative implications for the macroeconomy, household vulnerabilities and consumption inequality. Government support programs have stimulated the economy and lowered inequality and medium-term vulnerabilities. Content Type(s): Staff research, Staff analytical notes Topic(s): Coronavirus disease (COVID-19), Fiscal policy, Monetary policy JEL Code(s): E, E2, E20, E5, E52, E6, E62
ToTEM III: The Bank of Canada’s Main DSGE Model for Projection and Policy Analysis Technical Report No. 119 Paul Corrigan, Hélène Desgagnés, José Dorich, Vadym Lepetyuk, Wataru Miyamoto, Yang Zhang ToTEM III is the most recent generation of the Bank of Canada’s main dynamic stochastic general equilibrium model for projection and policy analysis. The model helps Bank staff tell clear and coherent stories about the Canadian economy’s current state and future evolution. Content Type(s): Staff research, Technical reports Topic(s): Business fluctuations and cycles, Economic models, Housing, Interest rates, Monetary policy JEL Code(s): E, E1, E17, E2, E20, E3, E30, E4, E40, E5, E50, E6, E62, E65, F, F4, F40, F41, G, G5, G51
Monetary Policy, Trends in Real Interest Rates and Depressed Demand Staff Working Paper 2021-27 Paul Beaudry, Césaire Meh Over the last few decades, real interest rates have trended downward. The most common explanation is that this reflects depressed demand due to demographic, technological and other real factors. We explore the claim that these trends may have been amplified by certain features of monetary policy. Content Type(s): Staff research, Staff working papers Topic(s): Debt management, Economic models, Fiscal policy, Inflation and prices, Interest rates, Monetary policy JEL Code(s): E, E2, E4, E43, E44, E5, E52, E6, E62, E63, H, H3, H6, H63
Shaping the future: Policy shocks and the GDP growth distribution Staff Working Paper 2021-24 Francois-Michel Boire, Thibaut Duprey, Alexander Ueberfeldt Can central bank and government policies impact the risks around the outlook for GDP growth? We find that fiscal stimulus makes strong GDP growth more likely—even more so when monetary policy is constrained—rather than weak GDP growth less likely. Thus, fiscal stimulus should accelerate the recovery phase of the COVID-19 pandemic. Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Econometric and statistical methods, Financial stability, Fiscal policy, Monetary policy JEL Code(s): C, C3, C32, C5, C53, E, E5, E52, E6, E62
Optimal Monetary and Macroprudential Policies Staff Working Paper 2021-21 Josef Schroth Optimal coordination of monetary and macroprudential policies implies higher risk weights on (safe) bonds any time that banks are required to hold additional capital buffers. Coordination also implies a somewhat tighter monetary-policy stance whenever such capital buffers are released. Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial stability, Financial system regulation and policies, Inflation targets, Monetary policy JEL Code(s): E, E4, E44, E6, E60, G, G2, G21, G28
Behaviour in the Canadian large-value payment system: COVID-19 vs. the global financial crisis Staff Analytical Note 2021-7 Alexander Chaudhry, Anneke Kosse, Karen Sondergard Unlike the 2008–09 global financial crisis, the onset of the COVID-19 crisis did not raise stress levels in Canada’s Large Value Transfer System. Swift changes to the Bank of Canada’s collateral policy and its large-scale asset purchase programs likely eased liquidity pressures in the system. Content Type(s): Staff research, Staff analytical notes Topic(s): Coronavirus disease (COVID-19), Financial institutions, Financial stability, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E51, E58, E6, E65
Labor Demand Response to Labor Supply Incentives: Lessons from the German Mini-Job Reform Staff Working Paper 2021-15 Gabriela Galassi How do firms change their employment decisions when tax benefits for low-earning workers are expanded? Some firms increase employment overall, whereas others replace high-earning workers with low-earning workers, according to German linked employer-employee data. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Firm dynamics, Labour markets JEL Code(s): E, E2, E24, E6, E64, H, H2, H20, H24, H3, H32, I, I3, I38, J, J2, J23, J3, J38
Complementarities Between Fiscal Policy and Monetary Policy—Literature Review Staff Discussion Paper 2021-4 Wei Dong, Geoffrey R. Dunbar, Christian Friedrich, Dmitry Matveev, Romanos Priftis, Lin Shao This paper surveys and summarizes the literature on how fiscal policy and monetary policy can complement each other in stabilizing economic activity. Content Type(s): Staff research, Staff discussion papers Topic(s): Fiscal policy, Monetary policy JEL Code(s): E, E5, E52, E58, E6, E62, E63
(Optimal) Monetary Policy with and without Debt Staff Working Paper 2021-5 Boris Chafwehé, Rigas Oikonomou, Romanos Priftis, Lukas Vogel How should policy be designed at high debt levels, when fiscal authorities have little room to adjust taxes? Assigning the monetary authority a role in achieving debt sustainability makes it less effective in stabilizing inflation and output. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Fiscal policy, Monetary policy, Monetary policy framework JEL Code(s): C, C1, C11, E, E3, E31, E5, E52, E58, E6, E62
Implementation and Effectiveness of Extended Monetary Policy Tools: Lessons from the Literature Staff Discussion Paper 2020-16 Grahame Johnson, Sharon Kozicki, Romanos Priftis, Lena Suchanek, Jonathan Witmer, Jing Yang This paper summarizes the literature on the performance of various extended monetary policy tools when conventional policy rates are constrained by the effective lower bound. We highlight issues that may arise when these tools are used by central banks of small open economies. Content Type(s): Staff research, Staff discussion papers Topic(s): Monetary policy, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E5, E52, E58, E6, E63