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Bank of Canada staff are running a “horse race” of alternative monetary policy frameworks in the lead-up to 2021 renewal of the Bank’s monetary policy framework. This paper summarizes some interim results of model simulations from their research.

Monetary policy in the presence of nominal debt and labour supply heterogeneity creates a policy trade-off: a short-term economic stimulus leads to persistently reduced output over the medium term. Price-level targeting weakens this trade-off and is better able to stabilize inflation and output than inflation targeting.

After a period with the interest rate at the effective lower bound, temporarily overshooting inflation may offer important economic benefits. This may be especially true for vulnerable segments of the population, such as workers with low attachment to the labour force and the long-term unemployed.

How should policy be designed at high debt levels, when fiscal authorities have little room to adjust taxes? Assigning the monetary authority a role in achieving debt sustainability makes it less effective in stabilizing inflation and output.

What are the main drivers behind the monetary policy reaction function of the People’s Bank of China?

We present a two-country model featuring risky lending and cross-border interbank market frictions.

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 Great Recession and current pandemic have focused attention on the constraint on nominal interest rates from the effective lower bound.

We study a novel policy tool—interest rate uncertainty—that can be used to discourage inefficient capital inflows and to adjust the composition of external account between shortterm securities and foreign direct investment (FDI).

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.