Stephen Murchison was appointed Advisor to the Governor, effective 4 May 2015. In this role, which focuses on the Bank of Canada’s international activities, Mr. Murchison helps develop the strategy for the Bank’s global engagement, supports the Governor at meetings of the Bank for International Settlements, and coordinates the Bank’s work with other international partners and forums. He is also the business lead on interdepartmental research on e-money.
Mr. Murchison joined the Bank in 1997 as an economist in the Canadian Projection and Model Development division of the Research Department, now Canadian Economic Analysis (CEA). Beginning in 1999, Mr. Murchison spent two years at the Department of Finance. He returned to the Bank in 2001 and occupied the increasingly senior positions of Principal Researcher, Assistant Chief, Research Director and Deputy Chief of CEA. In August 2013, Mr. Murchison was appointed Chief of CEA, a position he held until his current appointment.
Born in Barrie, Ontario, Mr. Murchison has a master’s degree in economics from Wilfrid Laurier University.
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.
When constrained by the zero lower bound, some central banks have communicated a threshold that must be met before short-term interest rates would be permitted to rise. Simulation results for Canada show that forward guidance that is conditional on achieving a price-level threshold can theoretically raise demand and inflation expectations by significantly more than unemployment thresholds. This superior performance is attributable to the fact that the price-level threshold depends on past inflation outcomes. In practice, however, history-dependent thresholds such as this might be more challenging for central banks to communicate.
This report provides a detailed technical description of an updated version of the Terms-of-Trade Economic Model (ToTEM II), which replaced ToTEM (Murchison and Rennison 2006) in June 2011 as the Bank of Canada’s quarterly projection model for Canada.
Stephen Murchison reviews the findings of recent Bank of Canada research on the relative merits of inflation targeting and price-level targeting (PLT) for a small open economy, such as Canada's, that is susceptible to large and persistent terms-of-trade shocks.