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.
We measure how the change in the share of constrained households in Canada following the COVID-19 recession has impacted the effectiveness of monetary policy.
The theory that rich economic diversity of businesses and households both affects and is shaped by economy-wide fluctuations has strong implications for monetary policy. This review places these insights in a Canadian context.
During downturns, workers get stuck in low-productivity jobs and wages remain stagnant. I build an heterogenous agent incomplete market model with a full job ladder that accounts for these facts. An adverse financial shock calibrated to the US Great Recession replicates the period’s slow recovery and missing disinflation.
