Staff research

We explain how the Bank of Canada’s policy models capture the trade-off between output and inflation in Canada. We provide new estimates of the trade-off and contrast them with those in the Bank’s macroeconomic models.

We estimate the effects of economic uncertainty on time use and discuss its macroeconomic implications. We develop a model to demonstrate that substitution between market and non-market work provides an additional insurance margin to households, weakening precautionary savings and labour supply and lowering aggregate demand, ultimately amplifying the contractionary effects of uncertainty.

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

We add downward nominal wage rigidity to a standard New Keynesian model with sticky prices and wages, where the zero lower bound on nominal interest rates is allowed to bind. We find that wage rigidity not only reduces the frequency of zero bound episodes but also mitigates the severity of corresponding recessions.

We analyze the interaction between committed monetary policy and discretionary fiscal policy in a model with public debt, endogenous government expenditures, distortive taxation and nominal rigidities.