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 Topic(s): Monetary policy framework, Monetary policy transmission JEL Code(s): E, E2, E21, E5, E50
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 Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Credit risk management, Financial stability, Financial system regulation and policies JEL Code(s): E, E3, E30, E4, E44, E5, E50
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 Topic(s): Business fluctuations and cycles, Economic models, Housing, Interest rates, Monetary policy JEL Code(s): E, E1, E17, E2, E20, E3, E30, E4, E40, E5, E50, E6, E62, E65, F, F4, F40, F41, G, G5, G51
Monetary Policy Pass-Through with Central Bank Digital Currency Staff Working Paper 2021-10 Janet Hua Jiang, Yu Zhu Many central banks are considering issuing a central bank digital currency (CBDC). This would introduce a new policy tool—interest on CBDC. We investigate how this new tool would interact with traditional monetary policy tools, such as the interest on central bank reserves. Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech, Monetary policy transmission JEL Code(s): E, E5, E50, E52
Safe Payments Staff Working Paper 2020-53 Jonathan Chiu, Mohammad Davoodalhosseini, Janet Hua Jiang, Yu Zhu In a cashless economy, would the private sector invest in the optimal level of safety in a deposit-based payment system? In general, because of externalities, the answer is no. While the private sector could over- or under-invest in safety, the government can use taxes or subsidies to correct private incentives. Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Digital currencies and fintech, Financial institutions, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E50, G, G2, G21
2020 US Neutral Rate Assessment Staff Discussion Paper 2020-12 James Bootsma, Thomas J. Carter, Xin Scott Chen, Christopher Hajzler, Argyn Toktamyssov This paper presents Bank of Canada staff’s current assessment of the US neutral rate, along with a newly developed set of models on which that assessment is based. The overall assessment is that the US neutral rate currently lies in a range of 1.75 to 2.75 percent. Content Type(s): Staff research, Staff discussion papers Topic(s): Economic models, Interest rates, Monetary policy JEL Code(s): E, E4, E40, E43, E5, E50, E52, E58, F, F4, F41
Short-Run Dynamics in a Search-Theoretic Model of Monetary Exchange Staff Working Paper 2020-48 Jonathan Chiu, Miguel Molico 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. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Monetary policy, Monetary policy transmission JEL Code(s): E, E4, E40, E5, E50
The neutral rate in Canada: 2020 update Staff Analytical Note 2020-24 Dmitry Matveev, Julien McDonald-Guimond, Rodrigo Sekkel The neutral rate of interest is important for central banks because it helps measure the stance of monetary policy. We present updated estimates of the neutral rate in Canada using the most recent data. We expect the COVID-19 pandemic to significantly affect the fundamental drivers of the Canadian neutral rate. Content Type(s): Staff research, Staff analytical notes Topic(s): Economic models, Interest rates, Monetary policy JEL Code(s): E, E4, E40, E43, E5, E50, E52, E58, F, F4, F41
Scenario Analysis and the Economic and Financial Risks from Climate Change Staff Discussion Paper 2020-3 Erik Ens, Craig Johnston This paper adapts climate-economy models that have been applied in other contexts for use in climate-related scenario analysis. We consider illustrative scenarios for the global economy that could generate economic and financial risks. Our results suggest there are significant economic risks from climate change and the move to a low-carbon economy. Content Type(s): Staff research, Staff discussion papers Topic(s): Climate change, Economic models, Financial stability, International topics JEL Code(s): C, C6, C68, D, D5, D58, E, E5, E50, O, O4, O44, P, P1, P18, Q, Q4, Q5, Q54, Q55
Bank Market Power and Central Bank Digital Currency: Theory and Quantitative Assessment Staff Working Paper 2019-20 Jonathan Chiu, Mohammad Davoodalhosseini, Janet Hua Jiang, Yu Zhu We show that issuing a deposit-like central bank digital currency (CBDC) with a proper interest rate would encourage banks to pay higher interest to keep their customers. Banks would then attract more deposits and offer more loans. Hence, a CBDC would not necessarily crowd out private banking. Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech, Market structure and pricing, Monetary policy, Monetary policy framework JEL Code(s): E, E5, E50, E58