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 Research Topic(s): Economic models, Interest rates, Monetary policy JEL Code(s): E, E4, E40, E43, E5, E50, E52, E58, F, F4, F41
The Determinants of Consumers’ Inflation Expectations: Evidence from the US and Canada Staff Working Paper 2020-52 Charles Bellemare, Rolande Kpekou Tossou, Kevin Moran We compare the determinants of consumer inflation expectations in the US and Canada by analyzing two current surveys. We find that Canadian consumers rely more on professional forecasts and the history of actual inflation when forming their expectations, while US consumers rely more on their own lagged expectations. Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Econometric and statistical methods, Inflation and prices, Inflation targets JEL Code(s): C, C3, C33, D, D8, D83, D84, E, E3, E31
The Heterogeneous Effects of COVID-19 on Canadian Household Consumption, Debt and Savings Staff Working Paper 2020-51 James (Jim) C. MacGee, Thomas Michael Pugh, Kurt See The impact of COVID-19 on Canadian households’ debt and unplanned savings varies by household income. Low-income and high-income households accrued unplanned savings, while middle-income households tended to accumulate more debt. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Coronavirus disease (COVID-19), Financial stability JEL Code(s): E, E2, E21, E24, G, G5, G51
A Macroeconomic Model of an Epidemic with Silent Transmission and Endogenous Self-isolation Staff Working Paper 2020-50 Antonio Diez de los Rios We study the interaction between epidemics and economic decisions in a model that has silent transmission of the virus. We find that rational behaviour strongly diminishes the severity of the epidemic but worsens the economic recession. We also find that the detection and isolation of not only symptomatic individuals but also those who are infected and asymptomatic or mildly symptomatic can reduce the severity of the recession caused by the pandemic. Content Type(s): Staff research, Staff working papers Research Topic(s): Coronavirus disease (COVID-19), Economic models JEL Code(s): E, E1, H, H0, I, I1
Has the Inflation Process Changed? Selective Review of Recent Research on Inflation Dynamics Staff Discussion Paper 2020-11 Oleksiy Kryvtsov, James (Jim) C. MacGee From 2011 to 2019, inflation in Canada and advanced economies usually registered below inflation targets, spurring the debate on whether the inflation process has changed. This paper highlights emerging questions that will influence the conduct of monetary policy in Canada in the near term. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Central bank research, Inflation and prices, Monetary policy JEL Code(s): E, E3, E31, E5, E52
Optimal Quantitative Easing in a Monetary Union Staff Working Paper 2020-49 Serdar Kabaca, Renske Maas, Kostas Mavromatis, Romanos Priftis How should a central bank conduct quantitative easing (QE) in a monetary union when regions differ in their size and portfolio characteristics? Optimal QE policy suggests allocating greater purchases from the region that faces stronger portfolio frictions, and not necessarily according to each region’s size. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Economic models, Monetary policy JEL Code(s): E, E4, E43, E5, E52, E58
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 Research Topic(s): Inflation and prices, Monetary policy, Monetary policy transmission JEL Code(s): E, E4, E40, E5, E50
Assessing Global Potential Output Growth: October 2020 Staff Discussion Paper 2020-10 Xin Scott Chen, Ali Jaffery, Guillaume Nolin, Karim Salhab, Peter Shannon, Subrata Sarker This paper presents updated estimates of potential output growth for the global economy through 2022. Global potential output growth is expected to decline sharply in the aftermath of the COVID-19 pandemic and recover partially by the end of the projection horizon of the October 2020 Monetary Policy Report. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Potential output, Productivity JEL Code(s): E, E1, E10, E2, E20, O, O4
How Should Unemployment Insurance Vary over the Business Cycle? Staff Working Paper 2020-47 Serdar Birinci, Kurt See Should unemployment benefits be more generous during economic downturns? The optimal amount and duration of benefit payments ultimately depend on the demographic and wealth characteristics of benefit recipients. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Fiscal policy, Labour markets JEL Code(s): E, E2, E24, E3, E32, J, J6, J64, J65
Understanding Trend Inflation Through the Lens of the Goods and Services Sectors Staff Working Paper 2020-45 Yunjong Eo, Luis Uzeda, Benjamin Wong 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. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Inflation and prices, Monetary policy transmission JEL Code(s): C, C1, C11, C3, C32, E, E3, E31, E5, E52