Balancing Act: Monetary Policy Responses to Natural Disasters Staff working paper 2026-28 Tatjana Dahlhaus, Alexander Ueberfeldt, Malik Shukayev Natural disasters can create important challenges for monetary policy in resource-rich small open economies. Using a DSGE model calibrated to Canada, we show that most disasters operate as adverse supply shocks, lowering output and raising inflation, thereby creating a trade-off for monetary policy. Content Type(s): Staff research, Staff working papers JEL Code(s): C, C1, C11, C3, C32, D, D6, D63, E, E5, E52, Q, Q5, Q54 Research Theme(s): Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission, Structural challenges, Climate change
Monetary Policy in an AI-Driven Two-Speed Economy Staff working paper 2026-27 Joshua Brault, Maryam Haghighi, Jing Yang We analyze monetary policy responses to AI in a two-sector New Keynesian model, distinguishing augmentation and automation. Both reduce labor demand, requiring accommodation that creates inflation trade-offs. Automation worsens them. Aggregate inflation depends on AI’s form and breadth, making policy stabilization more complex and aggregate data potentially misleading. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E24, E3, E31, E32, E5, E52, J, J2, J23, O, O3, O33 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission, Structural challenges, Digitalization and productivity
Monetary Policy Challenges in a Volatile World Staff analytical paper 2026-34 Stefano Gnocchi, Matteo Cacciatore Rising volatility and structural shifts—deglobalization, climate risks, and AI—are reshaping inflation and policy trade-offs. Evidence suggests central banks can accommodate supply-driven inflation while balancing inflation and output, as long as expectations stay anchored and policy reflects shock size, persistence, and broader economic conditions. Content Type(s): Staff research, Staff analytical paper JEL Code(s): E, E3, E31, E32, E5, E52, E58 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission, Structural challenges, Climate change, International trade, finance and competitiveness
Measuring the AI Economy Staff working paper 2026-20 Anton Korinek, Patrick McKelvey We construct a macroeconomic estimate of total AI production in the United States, combining inference and R&D/training activities with quality adjustments to account for algorithmic progress. We then develop a nascent framework for "AI GDP" that tracks the AI economy as a coherent whole, complementing traditional national accounts. Content Type(s): Staff research, Staff working papers JEL Code(s): C, C4, C43, E, E0, E01, E2, E22, E3, E31, O, O3, O33, O4, O47 Research Theme(s): Models and tools, Econometric, statistical and computational methods, Monetary policy, Real economy and forecasting, Structural challenges, Digitalization and productivity
The Impact of Potential Retail Central Bank Digital Currency on the Canadian Financial System During a Severe Recession Staff analytical paper 2026-30 Sofia Priazhkina This policy note examines how a non-interest-bearing retail central bank digital currency (CBDC) could affect the financial stability of Canada’s systemically important banks during a severe recession. Stress test results show that the banks remain resilient, maintaining key regulatory ratios even under high CBDC demand. Content Type(s): Staff research, Staff analytical paper JEL Code(s): E, E4, E44, E5, E58, E6, E61, G, G0, G01, G2, G21, G28 Research Theme(s): Financial system, Financial stability and systemic risk, Models and tools, Economic models, Money and payments, Digital assets and fintech, Structural challenges, Digitalization and productivity
Deglobalization and Trade Fragmentation: Implications for the Inflation-Output Trade-Off Staff analytical paper 2026-24 Matteo Cacciatore, Daniela Hauser, Yuko Imura How do deglobalization and rising trade costs affect monetary policy? A two-country, multi-sector model of Canada and the United States shows that bilateral trade-cost shocks generate a manageable inflation–output trade-off under the existing framework — but larger or more persistent shocks would make look-through policies costlier and riskier. Content Type(s): Staff research, Staff analytical paper JEL Code(s): D, D5, D57, E, E5, E52, E58, F, F1, F13, F4, F41, F6, F62 Research Theme(s): Monetary policy, Monetary policy framework and transmission, Monetary policy tools and implementation, Structural challenges, International trade, finance and competitiveness
Survey Evidence on Firm AI Adoption and its Implications Staff analytical paper 2026-22 Chanya Chawla, Crystal Arnburg This paper analyzes AI adoption among Canadian firms using December 2025 Business Leaders’ Pulse data. It finds that while personal use is widespread, operational adoption remains limited. Firms expect modest positive impacts on capital spending and small net negative effects on employment over the next three years. Content Type(s): Staff research, Staff analytical paper JEL Code(s): E, E0, E2, E22, E24, O, O3, O33 Research Theme(s): Structural challenges, Digitalization and productivity
Assessing global potential output growth: April 2026 Staff analytical paper 2026-20 Daniel de Munnik, Kristina Hess, Walter Muiruri, Tuuli McCully, Faiza Noor, Sabreena Obaid, Andrew Plummer, Louis Poirier, Abeer Reza, Jillian Schwartz We present the annual update of the Bank of Canada staff estimates for global potential output growth. These estimates served as key inputs to the analysis supporting the April 2026 Monetary Policy Report. Content Type(s): Staff research, Staff analytical paper JEL Code(s): E, E1, E2, F, F0, F1, O, O3, O33, O4 Research Theme(s): Models and tools, Econometric, statistical and computational methods, Monetary policy, Real economy and forecasting, Structural challenges, Demographics and labour supply, Digitalization and productivity
Potential output in Canada: 2026 assessment Staff analytical paper 2026-19 Alex Chernoff, Christopher Hajzler, Stéphanie Houle, Gabriella Ruggero, Olena Senyuta, Karanbir Sohal, Walter Steingress, Temel Taskin Growth in potential output is expected to drop from 2.3% in 2025 to 1.2% in 2026 given slowing population growth, US tariffs and trade policy uncertainty. It is then estimated to pick up to an average of 1.5% over 2027–29 as strengthening business and government investment supports trend labour productivity (TLP). Gradual adoption of artificial intelligence is also expected to lift TLP growth over the projection horizon. Content Type(s): Staff research, Staff analytical paper JEL Code(s): E, E2, E3, E4, E5 Research Theme(s): Models and tools, Economic models, Monetary policy, Real economy and forecasting, Structural challenges, Demographics and labour supply
Climate Change and Socio-economic inequality in the US Staff working paper 2026-16 Barbara Sadaba, Tatjana Dahlhaus This paper examines how climate change affects income inequality across US states. Using a new climate-inequality VAR and a century of daily temperature data, it shows that shifts across the full temperature distribution—not just average warming—have diverse effects on within-state inequality. Content Type(s): Staff research, Staff working papers JEL Code(s): C, C1, C11, C3, C32, D, D6, D63, Q, Q5, Q54 Research Theme(s): Models and tools, Econometric, statistical and computational methods, Structural challenges, Climate change