We study the short-run effects of monetary policy using a search-theoretic monetary model in which agents are subject to idiosyncratic shocks and aggregate monetary shocks.
The goods and services sectors have experienced considerably different dynamics over the past three decades. Our goal in this paper is to understand how such contrasting behaviors at the sectoral level affect the aggregate level of trend inflation dynamics.
Unexpected changes in interest rates lead small firms to materially change their investment rate. Large firms, in contrast, show a smaller response. This suggests both that financial conditions are an important channel for transmitting monetary policy and that firm characteristics can help us better understand fluctuations in business investment.
How exactly does forward guidance influence interest rate expectations?
Business investment has been lower than expected in Canada and abroad since the financial crisis of 2007–09. This corporate investment gap is mirrored in firms’ other financing decisions, as they have increased cash holdings and dividend payments and decreased issuance of debt and equity.
Central banks communicate the results of open market operations. This helps participants in financial markets more accurately estimate the prevailing demand and supply conditions in the market for overnight loans.
We present a two-country model featuring risky lending and cross-border interbank market frictions.
Strengthening Inflation Targeting: Review and Renewal Processes in Canada and Other Advanced JurisdictionsWe 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.
Canada plans to adopt a retail payment system to allow Canadians to pay in real time (or near real time) 24 hours a day, 7 days a week. However, the traditional model for setting the overnight interest rate does not operate 24/7.