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…Pierre L. Siklos – Pull Back the Curtain, Let Us See How Monetary Policy is Formed
From: Pierre L. Siklos To: Bill Morneau, Minister of Finance Date: August 2, 2017 Re: Pull Back the Curtain, Let Us See How Monetary Policy is Formed When it comes to carrying out monetary policy there are few areas where there is as much agreement as the notion that decisions should come out of a […]Pierre L. Siklos – Should We Revisit Monetary Policy to Consider a Financial Stability Link?
From: Pierre L. Siklos To: Minister of Finance Date: July 28, 2017 Re: Should We Revisit Monetary Policy to Consider a Financial Stability Link? In his letter to the Minister of Finance regarding the most recent renewal of the inflation target, dated 21 September 2016, Governor Poloz wrote that: “We conclude that monetary policy should […]Pierre L. Siklos – For Central Banks, it’s a Question of Credibility
From: Pierre L. Siklos To: Minister of Finance Date: July 27, 2017 Re: For Central Banks, it’s a Question of Credibility Central bankers have become fond of repeating to the public that they were, and are, following a flexible rule for setting interest rates in response to movements in inflation or the amount of slack […]Bank of Canada bets on growth with interest rate hike: Globe and Mail Op-Ed
Canadian monetary policy has just seen one of its most significant U-turns in recent years. On May 24, the Bank of Canada announced that it was holding its overnight rate steady. The tone of the announcement was less dovish than the previous one, but contained nothing to indicate impending rate increases. Shortly after the May announcement, markets were predicting a 5-per-cent chance of a rate increase in July. However, in the days preceding Wednesday’s announcement, that probability surpassed 90 per cent. With the bank increasing rates on Wednesday, how did we get so quickly from there to here?
Let’s start with the case for the rate hike. Unemployment has fallen to 6.5 per cent, GDP growth in the first quarter of 2017 was robust…
Jeremy Kronick on CTV – A Remarkable Change
Jeremy Kronick, Senior Policy Analyst with the C.D. Howe Institute says the macroeconomic effects of the rate increase are yet to be seen.
Steve Ambler on BNN – Why the Bank of Canada may want to hold off on a rate hike
Steve Ambler, David Dodge chair in monetary policy at the C.D. Howe Institute tells BNN reasons why the Bank of Canada should wait until September to hike.
Jeremy Kronick on CTV – What happens to debt loads?
Jeremy Kronick, Senior Policy Analyst with the C.D. Howe Institute weighs in on the possibility of an interest rate hike from the Bank of Canada.
Bank of Canada Should Hold Overnight Rate at 0.50 Percent Next Week; Hike to 1.25 Percent by July 2018: C.D. Howe Institute Monetary Policy Council
July 6, 2017 — In a tight vote, 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 0.50 percent at its next announcement on July 12, 2017. The MPC called for the Bank to hike to 0.75 percent at the following announcement in September, with further hikes to 1.00 by January 2018 and 1.25 by July 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…
Spendthrifts and Savers: Are Canadians Acting Like they are “House Poor” or “House Rich”?
House rich, big-spending Canadians are taking a gamble on the risk of an economic shock in Canada, according to a new report from the C.D. Howe Institute. In Spendthrifts and Savers: Are Canadians Acting Like they are “House Poor” or “House Rich”?, author Jeremy Kronick finds Canadian household spending, apart from housing, has not dropped […] Why the Bank of Canada needs to prepare Canadians for rate hikes: Globe and Mail Op-Ed
We have been stuck in a low-interest period for almost a decade now, and with that apparent inertia comes the challenge of knowing when to start reversing course. Last Wednesday’s interest rate announcement and press release by the Bank of Canada were slightly more hawkish (or slightly less dovish) in tone than its previous announcement, but it gave no explicit hints that rate increases are on the immediate horizon. However, stronger economic data that support the bank’s own internal forecasts suggest they should be. At a minimum, communication with the public should start to prepare the market for such increases.
To understand why, let’s review the concept of the neutral rate of interest. In the world of central banking, the…