Monetary Policy - Op Eds

On Aug. 27, the U.S. Federal Reserve Board announced an important modification of its monetary policy framework, moving towards “average-inflation targeting” (AIT). As the Fed’s announcement said: “following periods when inflation has been running persistently below two per cent, appropriate monetary policy will likely aim to achieve inflation moderately above two per cent for some time.” The obvious question for Canadian policy-makers is whether the Bank of Canada should follow suit. Our answer is: Perhaps, but the bar for changing the policy regime should be set high.

As the name suggests, under “average-inflation targeting,” the central bank’s target would be the average inflation rate over a specified time, say three years.…

Looking for more tools that the Bank of Canada can use to help our COVID-stricken economy recover, some observers argue for “going direct,” having the Bank of Canada “print money” and deliver it directly to households as transfers. In our view, that is a bad idea.

Broadly speaking, the Bank of Canada can “go direct” in two ways. One is to transfer extra funds directly to the general public — a technique often described as a “helicopter drop.” Imagine squadrons of helicopters flying over the country dropping cash out their loading bays. In fact, neither helicopters nor, for the most part, cash would be involved: rather, the Bank of Canada would send people cheques or make direct deposits into their bank accounts — a one-for-one,…

Je me méfie de l’or qui provoque des poussées de fièvre chez les spéculateurs. Mais avec les taux d’intérêt cloués au plancher, certains investisseurs sérieux considèrent maintenant le métal jaune pour remplacer partiellement les obligations dans leur portefeuille, car celles-ci ne parviennent plus à jouer pleinement leur rôle stabilisateur.

En début de carrière, lorsque je faisais mes dents dans le journalisme économique, j’ai probablement trop rencontré de petits promoteurs miniers et de gold bugs, ces adorateurs du métal précieux qui, bien avant les furieux adeptes du bitcoin, voient dans l’or, les conserves et les armes à feu, des moyens de survie après l’effondrement de la civilisation et de la monnaie.

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Last Wednesday’s interest rate announcement and Monetary Policy Report (MPR) from the Bank of Canada were the first under new governor Tiff Macklem. They provide welcome clarity on the bank’s thinking about the economic impact of the coronavirus pandemic and how monetary policy should respond

Back in March, the bank cut its traditional policy instrument, the target overnight interest rate, to 25 basis points, alongside heavy interventions in financial markets to provide liquidity. The high degree of uncertainty associated with the virus and the ensuing economic lockdown led the bank to be vague in its accompanying commentary, including the key question of how it intended to hit its two per cent inflation target. The April MPR did…

Even before the Bank of Canada’s interest rate announcement on Wednesday, the eyes of monetary policy watchers had shifted elsewhere – to the bank’s expanding balance sheet.

There was little surprise when the central bank left its target for the overnight rate at 25 basis points, with the deposit rate paid to banks also remaining at 25 basis points.

In fact, the target overnight rate is expected to remain where it is – a level at which the bank considers further cuts to be counterproductive – until at least well into 2021.

It is clear that the overnight rate will not be the centrepiece of the bank’s monetary policy for the foreseeable future.

Instead, the bank’s balance sheet and how it stickhandles it will…