To prepare for the 2021 renewal, our researchers studied the effectiveness of the monetary policy framework, assessed alternative frameworks and learned from the experience of other central banks.
Consumption inequality and a low interest rate environment are two important trends in today’s economy. But the implications they may have—and how those implications interact—within different monetary policy frameworks are not well understood. We study the ranking of alternative frameworks that take these trends into account.
In this analysis, we use simulations in the Bank of Canada’s projection model—the Terms-of-Trade Economic Model—to consider a suite of extended monetary policies to support the economy following the COVID-19 crisis.
Macroprudential policy should aim for bank balance sheets that are larger and safer during normal times but smaller and riskier during financial crises. During recoveries from financial crises, monetary policy should complement macroprudential policy by being less expansive than what would be required to close the labour gap.
This paper surveys and summarizes the literature on how fiscal policy and monetary policy can complement each other in stabilizing economic activity.
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.
The Great Recession and current pandemic have focused attention on the constraint on nominal interest rates from the effective lower bound.
Standard theories of price adjustment are based on the problem of a single-product firm, and therefore they may not be well suited to analyze price dynamics in the economy with multiproduct firms.
We analyze money financing of fiscal transfers (helicopter money) in two simple New Keynesian models: a “textbook” model in which all money is non-interest-bearing (e.g., all money is currency), and a more realistic model with interest-bearing reserves.