Ambler, Kronick – Stagflation: the Trade-Driven Elephant in the Room
From: Steve Ambler and Jeremy M. Kronick To: The Bank of Canada Governing Council Date: March 9, 2018 Re: Stagflation: the Trade-Driven Elephant in the Room As expected, the bank left the overnight rate target unchanged this week. The message was simple: growth remains broad-based, and the economic outlook will likely result in future interest rate hikes, […]Eichenbaum, Johannsen, Rebelo – Commodity Prices Not Best Predictor for the Loonie
From: Martin Eichenbaum, Benjamin K. Johannsen, and Sergio Rebelo To: Bill Morneau, Minister of Finance, and Stephen Poloz, Governor of the Bank of Canada Date: February 16, 2018 Re: Commodity Prices Not Best Predictor for the Loonie Contrary to popular belief, commodity prices are not the best predictor of the future exchange rate for the Canadian dollar, […]Understanding the Volatility of the Canadian Exchange Rate
Contrary to popular belief, commodity prices are not the best predictor of the future exchange rate for the Canadian dollar, according to new research from the C.D. Howe Institute. In “Understanding the Volatility of the Canadian Exchange Rate”, authors Martin Eichenbaum, Benjamin K. Johannsen, and Sergio Rebelo find the current real exchange rate, (ie., minus […] Robson and Kronick – Slumping Money Growth May Prefigure a Slumping Economy
From: William B.P. Robson and Jeremy M. Kronick To: Governing Council, Bank of Canada Date: January 23, 2018 Re: Slumping Money Growth May Prefigure a Slumping Economy Growth of Canada’s money stock has dipped sharply. The year-over-year growth rate of transactions money, M1+, has fallen from double digits to around 7 percent – its lowest […]Where does the Bank of Canada go after the latest rate hike? – Globe and Mail Op-Ed
The wait for the Bank of Canada to move is over; now the waiting for the next steps begins.
Wednesday’s rate increase by the bank did not come as a surprise. In its December interest-rate setting announcement, the bank noted that it would be guided by incoming data before raising its target for the overnight rate. Well, the data have spoken. Headline inflation nudged above the bank’s 2-per-cent target in November, coming in at 2.1 per cent, and two of the bank’s preferred measures of core inflation, CPI-trim and CPI-median (which remove volatile components from the index), moved up closer to 2 per cent.
The bank also noted the robust pace of business investment, and the positive outlook for future investment as factors…
Bank of Canada Should Raise Overnight Rate to 1.25 Percent This Week, and 1.75 Percent by January 2019
To: Stephen Poloz, Governor of the Bank of Canada From: The C.D. Howe Institute Monetary Policy Council Date: January 15, 2018 Re: Bank of Canada Should Raise Overnight Rate to 1.25 Percent This Week, and 1.75 Percent by January 2019 At our meeting last week we called for the Bank of Canada to raise its target for […]Jeremy Kronick – The Unintended Consequences of Bail-in
To: Minister Bill Morneau and Superintendent Jeremy Rudin From: Jeremy Kronick Date: December 8, 2017 Re: The Unintended Consequences of Bail-in Bail-in is not nearly as well known a term or concept as its cousin, bailout. But the idea of requiring systemically important financial institutions – usually banks – to issue a special category of […]Bank Of Canada Must Explain Its Focus On ‘Data-dependency’ – Globe And Mail Op-ed
In its interest-rate announcement on Wednesday, the Bank of Canada once again underlined that future changes in rates would be conditional on the data. Wednesday’s news statement noted that the Governing Council will continue to focus on how sensitive the economy is to interest rates, how economic capacity evolves, and changes to wages and inflation.
That is fine as far as it goes, but for households and businesses trying to anticipate changes in the overnight rate, and therefore changes to market rates, knowing that monetary policy is “data-dependent” – as the phrase has it – leaves a lot of unanswered questions.
To clear up the uncertainty, the bank should consider publishing its projected path forward for interest rates…
Bank of Canada Should Hold Overnight Rate at 1.00 Percent Next Week; Hike to 1.50 Percent by October 2018: C.D. Howe Institute Monetary Policy Council
October 19, 2017 — The C.D. Howe Institute’s Monetary Policy Council (MPC) called for the Bank of Canada to keep its target for the overnight rate, the very short-term interest rate it targets for monetary policy purposes, at 1.00 percent at its next announcement on October 25, 2017, and keep it there at its December setting. The MPC called for the Bank to hike to 1.25 percent by April of 2018, with a further increase to 1.50 percent by October 2018.
The MPC provides an independent assessment of the monetary stance consistent with the Bank of Canada’s 2 percent inflation target. William Robson, the Institute’s President and CEO, chairs the Council. Council members make recommendations for the Bank of Canada’s…
Kronick And Muthukumaran – Look Ma, We’ve Brought Back The Diffusion Index
To: Bank of Canada Governing Council From: Jeremy Kronick and Ramya Muthukumaran Date: September 18, 2017 Re: Look Ma, We’ve Brought Back the Diffusion Index One of the big puzzles for inflation-targeting central banks since the 2008 crisis has been missing inflation. Despite rock-bottom interest rates, unconventional monetary policy, and some healthy GDP rebounds, many […] Bank of Canada fuelling uncertainty with poor messaging on rates: Globe and Mail Op-Ed
Before Wednesday’s Bank of Canada interest-rate hike, financial markets had priced in only a 50-50 chance of such a move. This means that half the market believed the bank would hold rates steady, creating significant market uncertainty.
Uncertainty has big economic costs for consumers and businesses alike. Does the bank need to continue to improve its communication to alleviate these costs? The short answer is yes – but the question is how.
The thinking on options tends to fall into two camps. In the first camp are those arguing for publishing a conditional interest-rate forecast. One of the primary benefits of such a conditional forecast is to provide realistic expectations to financial markets. Businesses and…