Monetary Policy - Op Eds

In the Great Recession of 2007-2009, the Bank of Canada was able to minimize the damage to the Canadian economy relatively easily. However, the low interest rate environment continuing to dog all central banks is likely to make the bank’s current monetary policy tool kit insufficient to deal with any repeat of 2007-2009.

The government of Canada and the Bank of Canada announced the renewal of the inflation-control target on Oct. 24. The announcement contained no surprises, leaving the main features of the previous control target unchanged. For the next five years, the target will remain a year-over-year growth rate of 2 per cent in the consumer price index, expressed as the midpoint of a 1- to 3-per-cent range.

However,…

Bank of Canada Governor Stephen Poloz announced Wednesday that the central bank was leaving its overnight interest rate at 0.5 per cent with inflation remaining in the lower end of their 1-to-3-per-cent range. Many had been expecting this announcement and, as such, market reaction has been muted. However, two things stand out.

First, the interest rate decision came with an accompanying cut to the bank’s forecast for Canadian economic growth due to underwhelming exports, a slowdown in business investment and the uncertainty arising from Britain’s decision to leave the European Union.

Second, of late we have seen sterner warnings from the bank reiterating the dangers of the overheated Toronto and Vancouver housing…

The question as to what central bank “independence” means has arisen once more and not just in Canada. Bank of England Governor Mark Carney stepped into the Brexit debate and was accused of political interference. In India, the head of the central bank has decided not to seek re-appointment, with political controversy surrounding his tenure. When Bank of Canada Governor Stephen Poloz recently made comments relating to the federal budget he sparked debate over the bank’s independence.

This is far from a new issue. As early as the 1940s, Graham Towers, then the Bank of Canada’s governor, was accused of pandering to the government by keeping interest rates low, and other governors have skated near political controversy from time to…

For the six years after 2008, many Canadians recognized the aggressive actions taken by the Bank of Canada to stimulate our slumping economy. With the dramatic decline in the world price of oil over the past 18 months, many seem to expect equally aggressive actions. But they shouldn’t – instead, they need to recognize the genuine limitations of monetary policy.

Let’s begin with what monetary policy can do very well. When the Bank of Canada expands or contracts its balance sheet, it exerts a powerful influence on market interest rates, ranging from the overnight interest rate to yields on longer-term bonds. Such movements in market interest rates, which affect all regions and sectors, lead to changes in aggregate demand that, in…

The ongoing decline of the Canadian dollar is generating many headlines and lots of angst. Of all the questions I receive from journalists and students, the cause of our currency’s fluctuations is surely the most common. But there really isn’t much of a mystery here – or at least there shouldn’t be.

Let’s start with the facts. Our dollar was worth 73 U.S. cents in 1995 and dropped to 63 cents by 2002. It then rose steadily to 93 cents by 2008 and kept rising to be above par in 2011. Over the past four years, the Canadian dollar has fallen again; it is now just above 70 cents.

Economists have long been studying the causes of exchange-rate fluctuations, especially after the collapse of the Bretton Woods agreement in the…