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Carolyn A. Wilkins - Latest

  • September 11, 2009

    Bank of Canada Liquidity Actions in Response to the Financial Market Turmoil

    In response to the financial crisis of 2007-09, the Bank of Canada intervened repeatedly to stabilize the financial system and limit the repercussions of the crisis on the Canadian economy. This article reviews the extraordinary liquidity measures taken by the Bank during this period and the principles that guided the Bank's interventions. A preliminary assessment of the term liquidity facilities provided by the Bank suggests that they were an important source of liquidity support for some financial institutions and, on a broader basis, served to reduce uncertainty among market participants about the availability of liquidity, as well as helping to promote a return to well-functioning money markets.
  • June 2, 2006

    Another Look at the Inflation-Target Horizon

    The conduct of monetary policy within an inflation-targeting framework requires the establishment of an inflation-target horizon, which is the average time it takes inflation to return to the target. Policy-makers have an interest in communicating this horizon, since it is likely to help anchor inflation expectations. This article focuses on the determination of the appropriate policy horizon by reporting on two recent Bank of Canada studies. The evidence suggests that the current target horizon of six to eight quarters remains appropriate. It is important to note that the duration of the optimal inflation-target horizon varies widely, depending on the combination of shocks to the economy. In rare cases when the financial accelerator is triggered by a persistent shock, such as an asset-price bubble, it may be appropriate to take a longer view of the inflation-target horizon.
  • November 24, 2004

    Asset Prices and Monetary Policy: A Canadian Perspective on the Issues

    The issue addressed in this article is the extent to which monetary policy in Canada should respond to asset-price bubbles. The article concludes that maintaining low and stable consumer price inflation is the best contribution that monetary policy can make to promoting economic and financial stability, even when the economy experiences asset-price bubbles. In extreme circumstances—when an asset-price bubble is well identified and likely to have significant costs to the economy when it bursts—monetary policy might better maintain low and stable consumer price inflation by leaning against a particular bubble even though it may mean that inflation deviates temporarily from its target. Such a strategy might reduce the risk that a crash in asset prices could lead to a recession and to inflation markedly below target in the longer run. The circumstances where this strategy is possible will be rare because economists are far from being able to determine consistently and reliably when leaning against a particular bubble is likely to do more harm than good. Housing-price bubbles should be a greater concern for Canadian monetary policy than equity-price bubbles, since rising housing prices are more likely to reflect excessively easy domestic credit conditions than are equity prices, which are largely determined in global markets.
  • November 22, 2004

    The Evolving Financial System and Public Policy: Conference Highlights and Lessons

    At the 12th annual Bank of Canada economic conference, held in Ottawa on 4 and 5 December 2003, representatives from various public and private organizations and Bank of Canada staff discussed papers presented on three key issues affecting the financial system: financial contagion, the implications of bank diversification, and financial sector regulation. Papers on financial contagion studied the effect of globalization on Canadian foreign-asset exposures, developed a general-equilibrium model of a competitive interfirm lending market in which firms can borrow or lend, and used market-based indicators to determine the probability that contagion can be generated by interbank exposures. The papers on bank diversification focused on the links between the changing behaviour of financial institutions and risk-return trade-offs. Issues of financial sector regulation included the relationship between governance and financial sector soundness, the theoretical basis of bank regulations for capital requirements, and the implications of bank capital requirements for the transmission of monetary policy. A panel discussion provided extended discussion of the conference papers.
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