Monetary Policy and the Persistent Aggregate Effects of Wealth Redistribution Staff working paper 2021-38 Martin Kuncl, Alexander Ueberfeldt 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. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E21, E5, E50 Research Theme(s): Financial system, Household and business credit, Monetary policy, Monetary policy framework and transmission, Monetary policy tools and implementation, Real economy and forecasting
The Positive Case for a CBDC Staff discussion paper 2021-11 Andrew Usher, Edona Reshidi, Francisco Rivadeneyra, Scott Hendry We discuss the competition and innovation arguments for issuing a central bank digital currency (CBDC). A CBDC could be an effective competition policy tool for payments. A CBDC could also support the vibrancy of the digital economy. It could help solve market failures and foster competition and innovation in new digital payments markets. Content Type(s): Staff research, Staff discussion papers JEL Code(s): E, E4, E42, E5, E58, L, L4, L5 Research Theme(s): Financial system, Financial stability and systemic risk, Money and payments, Digital assets and fintech, Payment and financial market infrastructures, Retail payments
Exploring the potential benefits of inflation overshooting Staff analytical note 2021-16 Robert Amano, Marc-André Gosselin, Kurt See 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. Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E3, E31, E5, E52, J, J2, J20 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission, Real economy and forecasting
Sequencing Extended Monetary Policies at the Effective Lower Bound Staff discussion paper 2021-10 Yang Zhang, Lena Suchanek, Jonathan Swarbrick, Joel Wagner, Tudor Schlanger In this analysis, we use simulations in the Bank of Canada’s projection model—the Terms-of-Trade Economic Model—to consider a suite of extended monetary policies to support the economy following the COVID-19 crisis. Content Type(s): Staff research, Staff discussion papers JEL Code(s): E, E3, E4, E5, E52, E58 Research Theme(s): Models and tools, Economic models, Monetary policy, Monetary policy tools and implementation
The Side Effects of Safe Asset Creation Staff working paper 2021-34 Sushant Acharya, Keshav Dogra The secular decline in real interest rates has created a challenge for monetary policy, now confronting the zero lower bound more often. An increase in the supply of safe assets reduces downward pressure on the natural interest rate. This allows monetary policy to reach price stability and full employment, but not without cost—permanently lower investment. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E3, E4, E5, G, G1, H, H6 Research Theme(s): Financial system, Financial stability and systemic risk, Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Monetary policy tools and implementation
An Optimal Macroprudential Policy Mix for Segmented Credit Markets Staff working paper 2021-31 Jelena Zivanovic How can macroprudential policy and monetary policy stabilize segmented credit markets? Is there a trade-off between financial stability and price stability? I use a theoretical model to evaluate the performance of alternative policies and find the optimal mix of macroprudential and monetary policy in response to aggregate shocks. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E3, E30, E4, E44, E5, E50 Research Theme(s): Financial system, Financial stability and systemic risk, Household and business credit, Models and tools, Economic models, Monetary policy, Monetary policy tools and implementation
ToTEM III: The Bank of Canada’s Main DSGE Model for Projection and Policy Analysis Technical report No. 119 Paul Corrigan, Hélène Desgagnés, José Dorich, Vadym Lepetyuk, Wataru Miyamoto, Yang Zhang ToTEM III is the most recent generation of the Bank of Canada’s main dynamic stochastic general equilibrium model for projection and policy analysis. The model helps Bank staff tell clear and coherent stories about the Canadian economy’s current state and future evolution. Content Type(s): Staff research, Technical reports JEL Code(s): E, E1, E17, E2, E20, E3, E30, E4, E40, E5, E50, E6, E62, E65, F, F4, F40, F41, G, G5, G51 Research Theme(s): Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission, Real economy and forecasting
A New Measure of Monetary Policy Shocks Staff working paper 2021-29 Xu Zhang Combining various high frequency financial data with central bank projections, I construct a new measure of monetary policy shocks not predictable by the public information preceding a central bank’s announcements. I then study the causal effects of monetary policy on the macro economy. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E5, G, G0 Research Theme(s): Models and tools, Econometric, statistical and computational methods, Economic models, Monetary policy, Monetary policy framework and transmission, Monetary policy tools and implementation
Monetary Policy, Trends in Real Interest Rates and Depressed Demand Staff working paper 2021-27 Paul Beaudry, Césaire Meh Over the last few decades, real interest rates have trended downward. The most common explanation is that this reflects depressed demand due to demographic, technological and other real factors. We explore the claim that these trends may have been amplified by certain features of monetary policy. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E4, E43, E44, E5, E52, E6, E62, E63, H, H3, H6, H63 Research Theme(s): Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission, Real economy and forecasting
COVID-19 crisis: Liquidity management at Canada’s largest public pension funds Staff analytical note 2021-11 Guillaume Bédard-Pagé, Daniel Bolduc-Zuluaga, Annick Demers, Jean-Philippe Dion, Manu Pandey, Léanne Berger-Soucy, Adrian Walton We examine how the eight largest Canadian public pension funds managed liquidity during the market turmoil in March 2020. The funds were generally resilient to large demands for liquidity and relied heavily on Canada's core funding markets. Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E5, E58, G, G0, G01, G2, G23 Research Theme(s): Financial markets and funds management, Market functioning, Financial system, Financial institutions and intermediation, Financial stability and systemic risk