Monetary Policy Under Okun’s Hypothesis
The current monetary policy framework of the Fed intends to be more ’inclusive’ by running the economy hot for longer during expansions.
E - Macroeconomics and Monetary Economics
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Channels of Transmission: How Mortgage Rates Affect House Prices and Rents in Canada
We use Canadian data to examine how monetary policy affects house prices and the consumer price index for rent through exogenous changes in the mortgage interest rates. It finds that the price and rent impacts operate through various channels and that these impacts vary by region. -
Extraordinary Forward Guidance in Canada During the Pandemic
We consider two trade-offs inherent to extraordinary forward guidance (EFG): potency versus flexibility, and the credibility of forward guidance versus the credibility of inflation targeting. We argue that the form of EFG used by the Bank of Canada during the COVID‑19 pandemic balanced both trade-offs relatively well. -
Housing and the Long-Term Real Effects of Changes in Trend Inflation
An economy with fixed amortization mortgages and borrowing-constrained consumers leads to the level of inflation targeted having real effects on home ownership, consumption, and debt. Using a life-cycle housing tenure choice model, we show that by front-loading real mortgage payments, higher inflation lowers steady-state home ownership and the mortgage-debt-to-income ratio. -
Portfolio Rebalancing Channel and the Effects of Large-Scale Stock and Bond Purchases
We quantify the effects of large-scale stock purchases by a central bank and compare these to bond purchases. We find that the central bank’s equity purchases would lower the risk and term premiums on stocks and long-term bonds, respectively, and thereby stimulate economic activity. -
The Sectoral Origins of Post-Pandemic Inflation
This paper quantifies the contribution of sector-specific supply and demand shocks to personal consumption expenditure (PCE) inflation. It derives identification restrictions that are consistent with a large class of dynamic stochastic general equilibrium models with production networks. -
Inflation Expectations in Action: Exploring Agents’ Behaviour in a Period of High Inflation
Inflation expectations are important to monetary policy decision-makers. Using survey evidence, we examine how firms and consumers react to their inflation expectations during the post-pandemic period of high inflation. -
Estimating the Costs of Electronic Retail Payment Networks: A Cross-Country Meta Analysis
We explore how many electronic funds transfer (EFT) systems can viably coexist within a jurisdiction at efficient scale by estimating the cost curve of the average EFT. We estimate the marginal cost to be approximately $0.55 per transaction, and the fixed cost to be approximately $83 million per year. -
Pulse check: Measuring underlying inflation and its drivers
This note presents PULSE, a new measure of underlying inflation in Canada based on a dynamic factor model estimated on disaggregated inflation data. PULSE captures the persistent component of inflation and decomposes it into broad-based and sector-specific inflationary pressures. -
United in Booms, Divided in Busts: Regional House Price Cycles and Monetary Policy
This paper shows that regional disparities in house price growth are more pronounced during house price busts than during booms. To explain this observation we construct a two-region currency union model incorporating a housing sector and extrapolative belief updating regarding house prices. To solve the model, we propose a new method that efficiently handles extrapolative belief updating in a wide class of structural models.