E58 - Central Banks and Their Policies

• Household Heterogeneity and the Performance of Monetary Policy Frameworks

  Staff Working Paper 2022-12 Edouard Djeutem, Mario He, Abeer Reza, Yang Zhang

  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.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Monetary policy and uncertainty, Monetary policy framework, Monetary policy transmission JEL Code(s): D, D3, D31, D5, D52, E, E2, E21, E3, E31, E5, E52, E58

• The Central Bank Strikes Back! Credibility of Monetary Policy under Fiscal Influence

  Staff Working Paper 2022-11 Antoine Camous, Dmitry Matveev

  Central banks in many advanced economies enjoy a high degree of independence, which protects monetary policy decisions from political influence. But how should independent central banks react if pressured by fiscal policy-makers? We examine whether a central bank should design a monetary policy framework that prescribes acting conditionally on how fiscal policy behaves.

  Content Type(s): Staff research, Staff working papers Topic(s): Credibility, Fiscal policy, Monetary policy JEL Code(s): E, E0, E02, E5, E52, E58, E6, E61, E62

• A Horse Race of Alternative Monetary Policy Regimes Under Bounded Rationality

  Staff Discussion Paper 2022-4 Joel Wagner, Tudor Schlanger, Yang Zhang

  We introduce bounded rationality in a canonical New Keynesian model calibrated to match Canadian macroeconomic data since Canada’s adoption of inflation targeting. We use the model to quantitatively assess the macroeconomic impact of alternative monetary policy regimes.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Central bank research, Economic models, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E2, E27, E3, E4, E5, E52, E58

• Payment Coordination and Liquidity Efficiency in the New Canadian Wholesale Payments System

  Staff Discussion Paper 2022-3 Francisco Rivadeneyra, Nellie Zhang

  We study the impact of the Bank of Canada’s choice of settlement mechanism in Lynx on participant behaviors, liquidity usage, payment delays and the overall operational efficiency of the new system.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Payment clearing and settlement systems JEL Code(s): C, C5, E, E4, E42, E5, E58

• On the Wedge Between the PPI and CPI Inflation Indicators

  Staff Working Paper 2022-5 Shang-Jin Wei, Yinxi Xie

  We find that the CPI and PPI inflation indexes co-moved strongly throughout the late 20th century, but their correlation has fallen substantially since the early 2000s. We offer a structural explanation for this divergence based on the growth of global supply chains since 2000. This finding offers a unique perspective for the future design of optimal monetary policy.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Inflation targets, International topics, Monetary policy JEL Code(s): E, E3, E31, E5, E52, E58, F, F1, F11, F12, F4, F41, F6, F62

• Predicting the Demand for Central Bank Digital Currency: A Structural Analysis with Survey Data

  Staff Working Paper 2021-65 Jiaqi Li

  How much of a CBDC would Canadian households want to hold, and what design features of a CBDC would they care about?

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Digital currencies and fintech JEL Code(s): E, E5, E50, E58

• Central Bank Digital Currency and Banking: Macroeconomic Benefits of a Cash-Like Design

  Staff Working Paper 2021-63 Jonathan Chiu, Mohammad Davoodalhosseini

  Should a CBDC be more like cash or bank deposits? An interest-bearing, cash-like CBDC not only makes payments more efficient but also increases total demand. This has positive effects on other transactions, inducing more deposit taking and lending and, thus, bank intermediation.

  Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech, Monetary policy, Monetary policy framework JEL Code(s): E, E5, E50, E58

• Revisiting the Monetary Sovereignty Rationale for CBDCs

  Staff Discussion Paper 2021-17 Skylar Brooks

  One argument for central bank digital currencies (CBDCs) is that without them, private and foreign digital monies could displace domestic currencies, threatening the central bank’s monetary policy and lender of last resort capabilities. I revisit this monetary sovereignty rationale and offer a wider view—one that considers a broader set of currency functions and captures important cross-country variation.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Debt management, Digital currencies and fintech, Exchange rate regimes, Financial stability, Monetary policy JEL Code(s): E, E4, E41, E42, E5, E52, E58, H, H1, H12, H6, H63

• Monetary Policy Spillover to Small Open Economies: Is the Transmission Different under Low Interest Rates?

  Staff Working Paper 2021-62 Jin Cao, Valeriya Dinger, Tomás Gómez, Zuzana Gric, Martin Hodula, Alejandro Jara, Ragnar Juelsrud, Karolis Liaudinskas, Simona Malovaná, Yaz Terajima

  Does the transmission of monetary policy change when interest rates are low or negative? We shed light on this question by analyzing the international bank lending channels of monetary policy using regulatory data on banks from four small open economies: Canada, Chile, the Czech Republic and Norway.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, International topics, Monetary policy transmission JEL Code(s): E, E4, E43, E5, E52, E58, F, F3, F34, F4, F42, G, G2, G21, G28

• The impact of the Bank of Canada’s Government Bond Purchase Program

  Staff Analytical Note 2021-23 Rohan Arora, Sermin Gungor, Joe Nesrallah, Guillaume Ouellet Leblanc, Jonathan Witmer

  We assess the response of Government of Canada bond yields to the Bank of Canada’s initial announcement of the Government Bond Purchase Program (GBPP) as well as to the Bank’s later GBPP purchase operations.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Monetary policy, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E5, E52, E58, E6, E63