E4 - Money and Interest Rates

• Potential output in Canada: 2024 assessment

  Staff Analytical Note 2024-11 Tessa Devakos, Christopher Hajzler, Stephanie Houle, Craig Johnston, Antoine Poulin-Moore, Ron Rautu, Temel Taskin

  We expect that potential output in Canada will grow by 2.3% and 2.5% in 2023 and 2024, respectively, and average slightly below 1.7% by 2027 as population growth moderates. Relative to the April 2023 assessment, growth is revised up in 2024, with a larger contribution from trend labour input due to higher-than-anticipated population growth. We revise down our estimates of growth over 2025–26.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Economic models, Labour markets, Monetary policy, Potential output, Productivity JEL Code(s): E, E2, E3, E4, E5

• Assessing the US and Canadian neutral rates: 2024 update

  Staff Analytical Note 2024-9 Frida Adjalala, Felipe Alves, Hélène Desgagnés, Wei Dong, Dmitry Matveev, Laure Simon

  We assess both the US and Canadian nominal neutral rates to be in the range of 2.25% to 3.25%, somewhat higher than the range of 2.0% to 3.0% in 2023. The assessed range is back to the level it was at in April 2019.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Economic models, Interest rates, Monetary policy JEL Code(s): E, E4, E40, E43, E5, E50, E52, E58, F, F4, F41

• The Neutral Interest Rate: Past, Present and Future

  Staff Discussion Paper 2024-3 Matteo Cacciatore, Bruno Feunou, Galip Kemal Ozhan

  The decline in safe real interest rates over the past three decades has reignited discussions on the neutral real interest rate, known as R*. We address the determinants and estimation methods of R*, as well as the factors influencing its decline and its future trajectory.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Interest rates, Monetary policy, Monetary policy framework JEL Code(s): E, E4, E43, E5, E52, E6, E62

• U.S. Macroeconomic News and Low-Frequency Changes in Small Open Economies’ Bond Yields

  Staff Working Paper 2024-12 Bingxin Ann Xing, Bruno Feunou, Morvan Nongni-Donfack, Rodrigo Sekkel

  Using two complementary approaches, we investigate the importance of U.S. macroeconomic news in driving low-frequency fluctuations in the term structure of interest rates in Canada, Sweden and the United Kingdom. We find that U.S. macroeconomic news is particularly important to explain changes in the expectation components of the nominal, real and break-even inflation rates of small open economies.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Econometric and statistical methods JEL Code(s): E, E4, E43, E44, E47, G, G1, G14