Thomas J. Carter - Latest
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Strengthening Inflation Targeting: Review and Renewal Processes in Canada and Other Advanced Jurisdictions
We summarize the review and renewal process at four central banks (Reserve Bank of New Zealand, Bank of England, Sveriges Riksbank and the US Federal Reserve Bank) and compare them with the process at the Bank of Canada, which has been well-established since 2001. -
The Power of Helicopter Money Revisited: A New Keynesian Perspective
We analyze money financing of fiscal transfers (helicopter money) in two simple New Keynesian models: a “textbook” model in which all money is non-interest-bearing (e.g., all money is currency), and a more realistic model with interest-bearing reserves. -
The Neutral Rate in Canada: 2019 Update
This note provides an update on Bank of Canada staff’s assessment of the Canadian neutral rate. The neutral rate is the policy rate needed to keep output at its potential level and inflation at target once the effects of any cyclical shocks have dissipated. This medium- to long-run concept serves as a benchmark for gauging the degree of monetary stimulus provided by a given policy setting. -
Credibility, Flexibility and Renewal: The Evolution of Inflation Targeting in Canada
In 1991, Canada became the second country to adopt an inflation target as a central pillar of its monetary policy framework. The regime has proven much more successful than initially expected, both in achieving price stability and in stabilizing the real economy against a wide range of shocks. -
Optimal Interbank Regulation
Recent years have seen renewed interest in the regulation of interbank markets. A review of the literature in this area identifies two gaps: first, the literature has tended to make ad hoc assumptions about the interbank contract space, which makes it difficult to generate convincing policy prescriptions; second, the literature has tended to focus on ex-post interventions that kick in only after an interbank disruption has come underway (e.g., open-market operations, lender-of-last-resort interventions, bail-outs), rather than ex-ante prudential policies. -
Redistributive Effects of a Change in the Inflation Target
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. -
Comparing Forward Guidance and Neo-Fisherianism as Strategies for Escaping Liquidity Traps
What path should policy-makers select for the nominal rate when faced with a liquidity trap during which the effective lower bound binds? -
A Primer on Neo-Fisherian Economics
Conventional models imply that central banks aiming to raise inflation should lower nominal rates and thus stimulate aggregate demand. However, several economists have recently challenged this conventional wisdom in favour of an alternative “neo-Fisherian’’ view under which higher nominal rates might in fact lead to higher inflation. -
Inflation and Growth: A New Keynesian Perspective
The long-run relation between growth and inflation has not yet been studied in the context of nominal price and wage rigidities, despite the fact that these rigidities now figure prominently in workhorse macroeconomic models.