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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.

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.

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.

Households report distinctive views of the macroeconomy along partisan lines, while their expectations about personal finances do not follow the same pattern. Economic inequality remains the major contributor to polarized views of the macroeconomy. Partisan politics are simply a magnifier.

After the war in the Middle East began, futures markets hinted at how long oil prices could stay above their pre-war levels. Options on those futures further reveal how investors see the range and balance of risks around future oil prices—which helps central banks assess risks to inflation.

This note uses detailed expenditure data to decompose Canadian inflation into supply- and demand-driven components. The analysis sheds light on the drivers of post-pandemic inflation and shows that monetary policy primarily affects and responds to demand-driven inflation.

Businesses that can’t easily access credit experience slower growth. Indigenous-owned firms are less likely than other firms in Canada to use conventional lending products—like loans or lines of credit from banks. We look at why Indigenous-owned businesses may face barriers to accessing credit.

Using simulations of the Bank of Canada’s projection model, we assess inflation risks from greater supply-shock volatility and show that monetary policy faces sharper trade-offs, as stabilizing inflation increasingly comes at the cost of weaker real activity.

Amid heightened Canada–US trade tensions in 2025, financial markets showed signs that investors had greater difficulty anticipating near-term Bank of Canada interest rate decisions. We look at the Overnight Index Swap prices and intraday Government of Canada yields to identify the main driver of uncertainty around interest rate decisions.

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.