Understanding the crucial link between money supply and inflation: Globe & Mail Economy Lab
Published in the Globe and Mail on February 18, 2014
By Christopher Ragan
My students are often puzzled about the causes of inflation, the relationship between it and “money,” and the concerns over very low inflation. These questions also arise in current public debate. So here are a few pointers on these central macroeconomic topics.
Suppose you collect data from a large group of countries over 30 years. For each country, you measure the average annual inflation rate and the average annual growth rate of the “money supply,” which includes the physical currency in circulation and the total value of bank deposits. You then have a single data point for each country, showing that country’s inflation-money growth…
Price-Level Targeting: A Post-Mortem?
While the Bank of Canada has quietly shelved consideration of moving to price-level targeting as a basis for monetary policy, the merits of this approach remain strong, according to a report released today by the C.D. Howe Institute. In “Price-Level Targeting: A Post-Mortem?” author Steve Ambler finds price-level targeting has convincing advantages over inflation-targeting, especially […] Bernanke-to-Yellen handoff: The right central banker for the times: Globe & Mail Op-Ed
Published in the Globe & Mail on January 21, 2014
By Christopher Ragan
Next week, Ben Bernanke will step down as chairman of the U.S. Federal Reserve Board, to be succeeded by Janet Yellen. Although it’s easy to be pessimistic about the U.S. government’s ability to make important decisions, we should all cheer that system’s ability to select its monetary policy leaders. Mr. Bernanke was the perfect choice for the past eight years; Ms. Yellen is an equally appropriate choice for the next four.
The global financial crisis ushered in the world’s deepest and most synchronized recession in more than 60 years. But it was no “normal” recession. People who read their economic history know that financial crises…
Good luck to Fed Chairman Janet Yellen: Financial Post Op-Ed
Published in the Financial Post on November 15, 2013
By Finn Poschmann
Incoming Federal Reserve Board Chairman Janet Yellen swept into her Senate confirmation hearing Thursday morning amid a hail of shaky financial market news.
Eurozone economists, like those in Canada and the United States, have been busy marking down their outlooks for economic growth, and with them the inflation outlook has declined, too. Fear of deflation is sweeping the bond market, pushing down long-term interest rates and raising their volatility, with big implications for central bankers.
The irony for Dr. Yellen is that during her nomination campaign, opponents sought to tar her as soft on inflation, amid a global…
Carney era dead at Bank of Canada: Financial Post Op-Ed
Published in the Financial Post on October 24, 2013
By Finn Poschmann
Yesterday’s Bank of Canada interest rate announcement, accompanied by a preannounced downgrade to its economic forecast, triggered a wave of business headlines including variations on the word “gloom.”
Striking that the revised growth outlook was not news, and neither was the Bank’s complete inaction with respect to the overnight interest rate target – the only rate the Bank controls. What instead caught the gloomwatchers’ eyes was the Bank’s blunt refusal to reiterate past statements to the effect that short-term interest rates should be expected to go up when market conditions warranted.
And this is the topsy-turvy world to which bank…
We Have A Deal With Europe. Let’s Not Blow It: Globe And Mail Op-ed
Published in the Globe and Mail on October 18, 2013
By Lawrence Herman
We finally have a deal with Europe, called a comprehensive economic and trade agreement (CETA).
It took longer than expected and there was a real sense of drift, many thinking that the effort wasn’t going anywhere. But persistence and goodwill seems to have paid off.
The only problem is, we don’t have the text yet. All we have is the outline of an agreement in principle. A lot of what’s being put out by the Prime Minister’s Office has to be accepted on faith.
Judging from the rosy press conference given by Prime Minister Stephen Harper and EU President Jose Barroso earlier Friday, however, the hard negotiations are over and it’…
Canada’s central banker needs to explain his hands-off approach: Globe & Mail Op-Ed
Published in the Globe & Mail on October 15, 2013
By Christopher Ragan
When it comes to central banking, we appear to be living in the era of forward guidance.
U.S. Federal Reserve Chairman Ben Bernanke has stated that his policy interest rate will remain at its ultra-low level until the U.S. unemployment rate falls below 6.5 per cent. The Bank of England’s Mark Carney has promised the same until the British unemployment rate falls below 7 per cent. In both cases, the statements are intended to send a clear signal to financial-market participants that they should expect interest rates to remain low for quite a while – and this expectation is then supposed to drive a faster economic recovery.
Yet no…
The Seductive Myth of Canada’s “Overvalued” Dollar
2013″” Carney’s bold entrance, Poloz’s measured exit: Globe and Mail Op-Ed
Posted in the Globe & Mail on June 4, 2013
By Christopher Ragan
Last week was Mark Carney’s last as Bank of Canada governor, and this is Stephen Poloz’s first. For their employment records, it is a Carney exit and a Poloz entrance. For their policy actions, it is exactly the reverse.
Mr. Carney got monetary policy onto the stage with aggressive actions, and his challenges were responding to an economy that was falling off the cliff. Mr. Poloz’s challenges will be getting monetary policy out of the limelight as the economic recovery eventually progresses.
A few weeks into his mandate in 2008, Mr. Carney cut the central bank’s target for the overnight interest rate from 4 per cent to 3.5 per cent –…
Interest Rates: What Will the New Normal Look Like: Financial Post Op-Ed
Published in the Financial Post on May 29, 2013
By Paul Beaudry and Philippe Bergevin
In its last rate announcement with Mark Carney at the helm, the Bank of Canada unsurprisingly left short-term interest rates at 1%. Good news for borrowers; not so good for savers.
As has become its habit, the Bank also reminded us that rates won’t stay low for ever; they’ll stay where they are for “a period of time.” Inevitably, interest rates will go up, and eventually return to more normal levels. The question is: What will the new normal level look like?
Historically, the normal – or “neutral” in economic jargon – rate has been about 4%, but it varies over time. Over the coming decade or so, our assessment is that…
The New “Normal” for Interest Rates in Canada: The Implications of Long-Term Shifts in Global Saving and Investment
2013″” The Dangers of an Extended Period of Low Interest Rates: Why the Bank of Canada Should Start Raising Them Now
After an extended period of record-low interest rates, the Bank of Canada should reverse some monetary stimulus and begin raising interest rates, according to economist Paul Masson. In “The Dangers of an Extended Period of Low Interest Rates: Why the Bank of Canada Should Start Raising Them Now,” published by the C.D. Howe Institute, Masson […]