E58 - Central Banks and Their Policies

• How to Manage Macroeconomic and Financial Stability Risks: A New Framework

  Staff Analytical Note 2018-11 Thibaut Duprey, Alexander Ueberfeldt

  Monetary policy decisions need to consider all potential outcomes, not just the most likely path for the economy. This is especially true in the presence of elevated financial system vulnerabilities, which lead to increased downside risks for future growth.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Central bank research, Economic models, Financial stability, Financial system regulation and policies, Interest rates, Monetary Policy, Monetary policy framework JEL Code(s): E, E4, E44, E5, E52, E58, G, G0, G01

• A Policy Framework for E-Money: A Report on Bank of Canada Research

  Staff Discussion Paper 2018-5 Mohammad Davoodalhosseini, Francisco Rivadeneyra

  We present a policy framework for electronic money and payments. The framework poses a set of positive questions related to the areas of responsibility of central banks: payments systems, monetary policy and financial stability. The questions are posed to four broad forms of e-money: privately or publicly issued, and with centralized or decentralized verification of transactions. This framework is intended to help evaluate the trade-offs that central banks face in the decision to issue new forms of e-money.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Digital Currencies, Monetary Policy, Payment clearing and settlement systems JEL Code(s): E, E4, E41, E5, E51, E52, E58

• Asymmetric Risks to the Economic Outlook Arising from Financial System Vulnerabilities

  Staff Analytical Note 2018-6 Thibaut Duprey

  When financial system vulnerabilities are elevated, they can give rise to asymmetric risks to the economic outlook. To illustrate this, I consider the economic outlook presented in the Bank of Canada’s October 2017 Monetary Policy Report in the context of two key financial system vulnerabilities: high levels of household indebtedness and housing market imbalances.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Financial stability, Financial system regulation and policies, Monetary and financial indicators, Recent economic and financial developments, Uncertainty and monetary policy JEL Code(s): C, C0, C01, C1, C11, C15, E, E1, E17, E3, E32, E37, E4, E44, E47, E5, E58, E6, E66, G, G0, G01, G1, G18

• How Do Central Bank Projections and Forward Guidance Influence Private-Sector Forecasts?

  Staff Working Paper 2018-2 Monica Jain, Christopher S. Sutherland

  We construct a 23-country panel data set to consider the effect of central bank projections and forward guidance on private-sector forecast disagreement. We find that central bank projections and forward guidance matter mainly for private-sector forecast disagreement surrounding upcoming policy rate decisions and matter less for private-sector macroeconomic forecasts.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Central bank research, Inflation targets, Monetary Policy, Monetary policy communications, Transmission of monetary policy JEL Code(s): D, D8, D83, E, E3, E37, E5, E52, E58

• November 16, 2017 An Update on the Neutral Rate of Interest

  Bank of Canada Review - Autumn 2017 José Dorich, Abeer Reza, Subrata Sarker

  The neutral rate serves as a benchmark for measuring monetary stimulus and provides a medium- to long-run anchor for the real policy rate. Global neutral rate estimates have been falling over the past few decades. Factors such as population aging, high corporate savings, and low trend productivity growth are likely to continue supporting a low global neutral rate. These global factors as well as domestic factors are exerting downward pres-sure on the Canadian real neutral rate, which is estimated to be between 0.5 to 1.5 per cent. This low neutral rate has important implications for monetary policy and financial stability.

  Content Type(s): Publications, Bank of Canada Review Article Topic(s): Interest rates, International topics, Potential output, Recent economic and financial developments JEL Code(s): E, E4, E43, E5, E52, E58, F, F0, F01, F4, F43, O, O4

• November 16, 2017 An Initial Assessment of Changes to the Bank of Canada’s Framework for Market Operations

  Bank of Canada Review - Autumn 2017 Kaetlynd McRae, Sean Durr, David Manzo

  The Bank of Canada made changes to several of the tools that make up its framework for operations and liquidity provision. These changes came about after a comprehensive re-view of the framework and are designed to help the Bank better achieve its objectives of reinforcing the target for the overnight rate and supporting the well-functioning of Cana-dian financial markets under normal market conditions.

  Content Type(s): Publications, Bank of Canada Review Article Topic(s): Financial markets, Financial stability, Monetary policy framework, Monetary policy implementation, Payment clearing and settlement systems, Transmission of monetary policy JEL Code(s): E, E4, E42, E44, E5, E52, E58, G, G0, G01, G1, G18

• Communicating Uncertainty in Monetary Policy

  Staff Discussion Paper 2017-14 Sharon Kozicki, Jill Vardy

  While central banks cannot provide complete foresight with respect to their future policy actions, it is in the interests of both central banks and market participants that central banks be transparent about their reaction functions and how they may evolve in response to economic developments, shocks, and risks to their outlooks.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Credibility, Monetary Policy, Monetary policy communications, Uncertainty and monetary policy JEL Code(s): E, E5, E52, E58, E6, E61, E65

• Monetary Policy Under Uncertainty: Practice Versus Theory

  Staff Discussion Paper 2017-13 Rhys R. Mendes, Stephen Murchison, Carolyn A. Wilkins

  For central banks, conducting policy in an environment of uncertainty is a daily fact of life. This uncertainty can take many forms, ranging from incomplete knowledge of the correct economic model and data to future economic and geopolitical events whose precise magnitudes and effects cannot be known with certainty.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Monetary Policy, Uncertainty and monetary policy JEL Code(s): E, E5, E52, E58, E6, E61, E65

• Redistributive Effects of a Change in the Inflation Target

  Staff Analytical Note 2017-13 Robert Amano, Thomas J. Carter, Yaz Terajima

  In light of the financial crisis and its aftermath, several economists have argued that inflation-targeting central banks should reconsider the level of their inflation targets. While the appropriate level for the inflation target remains an open question, it’s important to note that any transition to a new target would entail certain costs.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Inflation targets, Monetary policy framework JEL Code(s): E, E5, E52, E58

• Changes in Monetary Regimes and the Identification of Monetary Policy Shocks: Narrative Evidence from Canada

  Staff Working Paper 2017-39 Julien Champagne, Rodrigo Sekkel

  We use narrative evidence along with a novel database of real-time data and forecasts from the Bank of Canada's staff economic projections from 1974 to 2015 to construct a new measure of monetary policy shocks and estimate the effects of monetary policy in Canada.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Business fluctuations and cycles, Central bank research, Econometric and statistical methods, Exchange rate regimes, Inflation and prices, Inflation targets, Interest rates, Monetary Policy, Monetary policy framework JEL Code(s): E, E3, E31, E32, E4, E43, E5, E52, E58