A Behavioral New Keynesian Model of a Small Open Economy Under Limited Foresight Staff Working Paper 2023-44 Seunghoon Na, Yinxi Xie This paper studies exchange rate dynamics by incorporating bounded rationality, that is, limited foresight, in a small open-economy model. This behavior of limited foresight helps explain several observations and puzzles in the data of exchange rate movements. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Exchange rates, International topics, Monetary policy transmission JEL Code(s): E, E4, E43, E7, E70, F, F3, F31, F4, F41
Digitalization: Implications for Monetary Policy Staff Discussion Paper 2023-18 Vivian Chu, Tatjana Dahlhaus, Christopher Hajzler, Pierre-Yves Yanni We explore the implications of digitalization for monetary policy, both in terms of how monetary policy affects the economy and in terms of data analysis and communication with the public. Content Type(s): Staff research, Staff discussion papers Topic(s): Digitalization, Inflation and prices, Market structure and pricing, Monetary policy, Monetary policy communications, Monetary policy transmission JEL Code(s): C, C4, C8, E, E3, E31, E32, E5, E52
It takes a panel to predict the future: What the stock market says about future economic growth in Canada Staff Analytical Note 2023-9 Greg Adams, Jean-Sébastien Fontaine Valuation ratios in the Canadian stock market can help reveal investors’ expectations about future economic growth because the impact of economic growth on valuation ratios can vary across industries. We find that this variation helps produce accurate forecasts of future growth of real gross domestic product in Canada. The forecasts from our model declined by just over 3 percentage points between January 2022 and February 2023—a period when the Bank of Canada rapidly increased the overnight rate. As well, we find that interest-rate-sensitive industries had an outsized contribution to this expected slowdown in growth. Content Type(s): Staff research, Staff analytical notes Topic(s): Asset pricing, Financial markets, Monetary policy transmission JEL Code(s): E, E4, E44, E47, E5, E52
Monetary Policy Transmission, Bank Market Power, and Wholesale Funding Reliance Staff Working Paper 2023-35 Amina Enkhbold I study how banking market concentration and reliance on wholesale funding affect monetary policy transmission to mortgage rates. I find that this transmission is imperfect and dampens the response of consumption, output, and housing prices. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Inflation targets, Monetary policy transmission, Wholesale funding JEL Code(s): E, E4, E44, E5, E52, G, G2, G21
June 8, 2023 Economic progress report: Are we entering a new era of higher interest rates? Remarks Paul Beaudry Greater Victoria Chamber of Commerce Victoria, British Columbia Deputy Governor Paul Beaudry discusses the latest interest rate decision and suggests reasons why longer-term interest rates could remain higher than they were before the pandemic. Content Type(s): Press, Speeches and appearances, Remarks Topic(s): Central bank research, Coronavirus disease (COVID-19), Domestic demand and components, Expectations, Housing, Inflation and prices, Inflation targets, Interest rates, Labour markets, Monetary policy, Monetary policy transmission, Price stability, Recent economic and financial developments, Service sector
June 8, 2023 Adjusting to higher interest rates Speech summary Paul Beaudry Greater Victoria Chamber of Commerce Victoria, British Columbia Speaking a day after we raised interest rates, Deputy Governor Paul Beaudry talks about what Governing Council considered in its decision. He also suggests reasons why long-term interest rates could remain higher than they were before the COVID-19 pandemic. Content Type(s): Press, Speeches and appearances, Speech summaries Topic(s): Central bank research, Coronavirus disease (COVID-19), Domestic demand and components, Expectations, Housing, Inflation and prices, Inflation targets, Interest rates, Labour markets, Monetary policy, Monetary policy transmission, Price stability, Recent economic and financial developments, Service sector
Firms’ inflation expectations and price-setting behaviour in Canada: Evidence from a business survey Staff Analytical Note 2023-3 Ramisha Asghar, James Fudurich, Jane Voll Canadian firms’ expectations for high inflation may be influencing their price setting, supporting strong price growth and delays in the transmission of monetary policy. Using data from the Business Outlook Survey, we investigate the reasons behind widespread price growth seen in Canada in 2021 and early 2022. Content Type(s): Staff research, Staff analytical notes Topic(s): Firm dynamics, Inflation and prices, Monetary policy transmission, Recent economic and financial developments JEL Code(s): D, D2, D22, E, E3, E31
February 7, 2023 Monetary policy at work Remarks Tiff Macklem CFA Québec Québec, Québec Bank of Canada Governor Tiff Macklem explains how recent interest rate increases work their way through the Canadian economy to slow demand and bring inflation down. Content Type(s): Press, Speeches and appearances, Remarks Topic(s): Domestic demand and components, Exchange rates, Inflation and prices, Interest rates, Monetary policy, Monetary policy transmission, Recent economic and financial developments
February 7, 2023 Higher interest rates are working Speech summary Tiff Macklem CFA Québec Québec, Québec Governor Tiff Macklem explains how the Bank of Canada’s increases to the policy interest rate will cool the economy and bring inflation down. Content Type(s): Press, Speeches and appearances, Speech summaries Topic(s): Domestic demand and components, Exchange rates, Inflation and prices, Interest rates, Monetary policy, Monetary policy transmission, Recent economic and financial developments
Risk Amplification Macro Model (RAMM) Technical Report No. 123 Kerem Tuzcuoglu The Risk Amplification Macro Model (RAMM) is a new nonlinear two-country dynamic model that captures rare but severe adverse shocks. The RAMM can be used to assess the financial stability implications of both domestic and foreign-originated risk scenarios. Content Type(s): Staff research, Technical reports Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Financial stability, Monetary policy transmission JEL Code(s): C, C5, C51, E, E3, E37, E4, E44, F, F4, F44