One Percent? For Real? Insights from Modern Growth Theory about Future Investment Returns

Un pour cent? Vraiment? Ce que la théorie économique moderne laisse présager quant au rendement futur des investissements

C.D. Howe Institute Monetary Policy Council Calls for Bank of Canada to Hold Overnight Rate at 0.50 Percent through Mid-Year; Hike to 0.75 Percent by September 2016

September 3, 2015 — The C.D. Howe Institute’s Monetary Policy Council (MPC) today recommended that the Bank of Canada 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 September 9, 2015. Looking ahead, the Council called for the Bank to hold the target at 0.50 percent through to March of 2016 and hike it to 0.75 percent by September of 2016.

The MPC provides an independent assessment of the monetary stance appropriate for the Bank of Canada as it pursues its 2 percent inflation target. William Robson, the Institute’s President and Chief Executive Officer, chairs the Council.

Council members make…

What’s In A Price?: Financial Post Op-ed

By Finn Poschmann and Aaron Jacobs

The Bank of Canada should improve its inflation analyses to better account for costs such as housing

Since spring 2009, consumer prices as measured by Statistics Canada’s all-items consumer price index, have gone up by about 12 per cent.

That means that over the long haul, the Bank of Canada seems to have done a pretty good job of hitting the 2 per cent annual inflation target it agreed on with the Government of Canada a generation ago. Good thing, too, as the agreement is up for renewal in 2016.

Which raises a question, about whether we have got right the measure of inflation to use in assessing monetary policy’s performance. Statcan’s CPI, for instance, has a component…

Improving on the CPI: A Proposal for a Better Inflation Indicator

Why Bank Of Canada’s Rate Cut May Have Less Impact Than Poloz Hopes: Globe And Mail Op-ed

Published in the Globe and Mail on July 15, 2015

Steve Ambler is David Dodge Chair in monetary policy at the C.D. Howe Institute and professor at the University of Quebec at Montreal.

The Bank of Canada’s decision to cut its overnight rate target to 0.5 per cent was expected by many in the wake of the disappointing economic news that’s come since the previous announcement in May. Instead of “a return to solid growth in the second quarter,” as the bank predicted then, gross domestic product growth for the entire second quarter may have been negative.

he bank weighs many factors before making a decision on the overnight rate target. The two main ones are the rate of inflation itself and excess capacity…

Philip Cross: Cheap money can hurt the economy: Financial Post Op-Ed

Published in the Financial Post on July 9, 2015

By Philip Cross

Philip Cross is a Research Fellow at the C.D. Howe Institute.

Lower interest rates “cause pervasive mispricing in financial markets”

The Canadian and U.S. economy’s unexpected weakness early in 2015 is fanning speculation about lower interest rates, after the Bank of Canada’s surprise cut in mid-January. Before listening to these siren calls for ever more monetary policy stimulus, it would be wise to read the recent annual report of the Bank for International Settlements, the Swiss-based bank for the world’s central banks. Beholden to no government, the BIS speaks with a refreshingly candid, clear and unconventional voice.

The…

C.D. Howe Institute Monetary Policy Council Recommends Bank of Canada Hold Overnight Rate at 0.75 Percent through Mid-Year; Looks for 1.00 Percent by July 2016

July 9, 2015 — The C.D. Howe Institute’s Monetary Policy Council (MPC) today recommended that the Bank of Canada keep its target for the overnight rate, the very short-term interest rate it targets for monetary policy purposes, at 0.75 percent at its next announcement on July 15, 2015. Looking ahead, the Council called for the Bank to hold the target at 0.75 percent through the end of the year, raising it to 1.00 percent by July of 2016.

The MPC provides an independent assessment of the monetary stance appropriate for the Bank of Canada as it pursues its 2 percent inflation target. William Robson, the Institute’s President and Chief Executive Officer, chairs the Council.

Council members make recommendations…

For system financial risk, use regulation not monetary policy: Financial Post Op-Ed

Published in the Financial Post on June 25, 2014

By Paul Jenkins and David Longworth

Paul Jenkins is a former Senior Deputy Governor, and David Longworth a former Deputy Governor, at the Bank of Canada. They are also Senior and Research Fellows at the C.D. Howe Institute.

High and rising household debt is raising red flags. In its June Financial System Review, the Bank of Canada evaluated risks to financial stability associated with household financial stress and a sharp correction in housing prices, and came to the conclusion that the impact of these risks stood at the highest level among those it assesses.

What can be done to address such vulnerabilities and risks? We believe that they should…

William Robson: Bank Of Canada’s Inflation Target Is Better Than Alternatives: National Post Op-ed

Published in the National Post on June 24, 2015

By William Robson

William Robson is president and CEO of the C. D. Howe Institute.

Inflation? Meh. To most Canadians, especially young Canadians, it’s an abstract threat, or no threat at all. And that, for those who remember the crazy price increases of the 1970s and ’80s, is an amazing change for the better.

The end of 2015 will mark two full decades since the Bank of Canada adopted a two per cent target for annual increases in the consumer price index (CPI). And it’s been mostly hitting the target. Over the 234 months from the end of 1995 to this May, the CPI was within one percentage point of the target in 183 of them. The cumulative annualized CPI…

Securing Monetary and Financial Stability: Why Canada Needs a Macroprudential Policy Framework

Poloz caught between debt and an oil price: Globe and Mail Op-Ed

Published in the Globe and Mail on December 16, 2014

By: Christopher Ragan

Christopher Ragan is an associate professor of economics at McGill University and a research fellow at the C.D. Howe Institute.

Events in the world economy, combined with recent data released from the Bank of Canada, reveal why conducting monetary policy is so difficult. We may not need to feel sympathy for Bank of Canada Governor Stephen Poloz, but we should at least understand and appreciate how conflicting economic forces can complicate his policy decisions.

The first major force is the massive decline in the world price of oil from $105 (U.S.) a barrel in June to below $60 today. As is the case for most changes in…