The Canadian Neutral Rate of Interest through the Lens of an Overlapping-Generations Model Staff discussion paper 2023-5 Martin Kuncl, Dmitry Matveev We use a small open economy model with overlapping generations to evaluate secular dynamics of the neutral rate in Canada from 1980 to 2018. We find that changes in both foreign and domestic factors resulted in a protracted decline in the neutral rate. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Economic models, Interest rates, Monetary policy JEL Code(s): E, E2, E21, E22, E4, E43, E5, E50, E52, E58, F, F4, F41 Research Theme(s): Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission, Structural challenges, Demographics and labour supply
Inflation, Output, and Welfare in the Laboratory Staff working paper 2023-11 Janet Hua Jiang, Daniela Puzzello, Cathy Zhang We investigate the effect of inflation on output and welfare in the laboratory. Consistent with monetary theory, we find that inflation acts as a tax on monetary exchange and reduces output and welfare. Content Type(s): Staff research, Staff working papers Research Topic(s): Inflation and prices, Inflation: costs and benefits, Monetary policy JEL Code(s): C, C9, C92, D, D8, D83, E, E4, E40 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission
Introducing the Bank of Canada’s Market Participants Survey Staff analytical note 2023-1 Annick Demers, Tamara Gomes, Stephane Gignac The Market Participants Survey (MPS) gathers financial market participants’ expectations for key macroeconomic and financial variables and for monetary policy. This staff analytical note describes the MPS’s objectives and main features, its process and design, and how Bank of Canada staff use the results. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Financial markets, Monetary policy and uncertainty, Recent economic and financial developments JEL Code(s): C, C8, C83, E, E4, E44, E5, E52, E58, G, G1, G12, G14 Research Theme(s): Financial markets and funds management, Market functioning, Monetary policy, Monetary policy framework and transmission, Monetary policy tools and implementation
(Un)Conventional Monetary and Fiscal Policy Staff working paper 2023-6 Jing Cynthia Wu, Yinxi Xie We build a tractable New Keynesian model to study and compare four types of monetary and fiscal policy: policy rate adjustments, quantitative easing, lump-sum fiscal transfers and government spending. We find that tax-financed fiscal policy is more stimulative than debt-financed policy, and optimal policy coordination needs at least two of these four policy instruments. Content Type(s): Staff research, Staff working papers Research Topic(s): Fiscal policy, Monetary policy JEL Code(s): E, E4, E6, E61, E62, E63 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission, Monetary policy tools and implementation, Real economy and forecasting
The 2021–22 Surge in Inflation Staff discussion paper 2023-3 Oleksiy Kryvtsov, James (Jim) C. MacGee, Luis Uzeda The rise in inflation in 2021–22 sparked a growing literature and debate over the causes of the surge as well as the near- and medium-term path for inflation. This review offers three key messages. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Inflation and prices, Inflation targets, Monetary policy JEL Code(s): E, E3, E31, E5, E52, E58 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission
Gazing at r-star: A Hysteresis Perspective Staff working paper 2023-5 Paul Beaudry, Katya Kartashova, Césaire Meh Many explanations for the decline in real interest rates over the last 30 years point to the role that population aging or rising income inequality plays in increasing the long-run aggregate demand for assets. Notwithstanding the importance of such factors, the starting point of this paper is to show that the major change driving household asset demand over this period is instead an increased desire—for a given age and income level—to hold assets. Content Type(s): Staff research, Staff working papers Research Topic(s): Economic models, Fiscal policy, Inflation and prices, Inflation targets, Interest rates, Monetary policy, Monetary policy framework JEL Code(s): E, E2, E21, E3, E31, E4, E43, E5, E52, E58, E6, E62, G, G5, G51, H, H6 Research Theme(s): Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission, Real economy and forecasting
Summaries of Central Bank Policy Deliberations: A Canadian Context Staff discussion paper 2023-2 Monica Jain, Walter Muiruri, Jonathan Witmer, Sharon Kozicki, Jeremy Harrison This paper provides the context, rationale and key considerations that informed the Bank of Canada’s decision to publish a summary of monetary policy deliberations. It includes an analysis of how other central banks disclose minutes and summaries of their monetary policy deliberations. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Monetary policy communications JEL Code(s): D, D8, D83, E, E5, E58 Research Theme(s): Monetary policy, Monetary policy framework and transmission, Monetary policy tools and implementation
CANVAS: A Canadian Behavioral Agent-Based Model Staff working paper 2022-51 Cars Hommes, Mario He, Sebastian Poledna, Melissa Siqueira, Yang Zhang The Bank of Canada’s current suite of models faces challenges in addressing network effects that integrate household and firm-level heterogeneity and their behaviours. We develop CANVAS, a Canadian behavioural agent-based model to contribute to the Bank’s next-generation modelling effort. CANVAS improves forecasting performance and expands capacity for model-based scenario analysis. Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Econometric and statistical methods, Economic models, Firm dynamics, Inflation and prices JEL Code(s): C, D, D2, D22, D8, D83, E, E1, E17 Research Theme(s): Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission, Real economy and forecasting
Understanding Post-COVID Inflation Dynamics Staff working paper 2022-50 Martin Harding, Jesper Lindé, Mathias Trabandt We propose a macroeconomic model with a nonlinear Phillips curve that has a flat slope when inflationary pressures are subdued and steepens when inflationary pressures are elevated. Our model can generate more sizable inflation surges due to cost-push and demand shocks than a standard linearized model when inflation is high. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Central bank research, Coronavirus disease (COVID-19), Economic models, Inflation and prices, Inflation: costs and benefits, Monetary policy, Monetary policy implementation JEL Code(s): E, E3, E30, E31, E32, E37, E4, E44, E5, E52 Research Theme(s): Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission
Monetary Policy, Credit Constraints and SME Employment Staff working paper 2022-49 Julien Champagne, Émilien Gouin-Bonenfant We revisit an old question: how do financial constraints affect the transmission of monetary policy to the real economy? To answer this question, we propose a simple empirical strategy that combines firm-level employment and balance sheet data, identified monetary policy shocks and survey data on financing activities. Content Type(s): Staff research, Staff working papers Research Topic(s): Credit and credit aggregates, Econometric and statistical methods, Firm dynamics, Labour markets, Monetary policy JEL Code(s): E, E2, E3, E4, E43, E5, E52, G, G3 Research Theme(s): Financial system, Household and business credit, Monetary policy, Monetary policy framework and transmission, Real economy and forecasting