José Dorich is the Director of the Model Development Division in the Canadian Economic Analysis Department. His primary research interests include macroeconomic theory, monetary economics and applied macroeconomics. Specific topics include inflation dynamics, quantitative easing and price level targeting. Jose has also worked extensively with ToTEM - the Bank of Canada’s main DSGE model for projection and policy analysis. Mr. Dorich received his PhD in Economics from Universitat Pompeu Fabra.
We use the Terms-of-Trade Economic Model (ToTEM) to conduct demand- and supply-driven simulations, both of which deliver weakness in Canadian non-commodity exports relative to foreign activity in line with recent data.
This note summarizes the key findings from Bank of Canada staff analytical work examining the reasons for the recent weakness in Canadian non-energy exports. Canada steadily lost market share in US non-energy imports between 2002 and 2017, mostly reflecting continued and broad-based competitiveness losses.
The neutral nominal policy rate serves as a benchmark for assessing the degree of monetary stimulus and provides a medium- to long-run anchor for the policy rate. Since quantitative measures of the neutral rate are subject to considerable uncertainty, Bank staff rely on four different approaches to estimate the Canadian neutral rate.
Recent international experience with the effective lower bound on nominal interest rates has rekindled interest in the benefits of inflation targets above 2 per cent. We evaluate whether an increase in the inflation target to 3 or 4 per cent could improve macroeconomic stability in the Canadian economy.
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.