Op-Eds

Last week’s quarterly “Monetary Policy Report” (MPR) from the Bank of Canada sketched the long and likely winding road Canada’s economy needs to travel before it gets back to where it was pre-pandemic. And, with it, the long road inflation will have to take to return to its target rate of two per cent. At the same time, the bank announced it would hold the target overnight rate of interest at its effective lower bound of 25 basis points (i.e., 0.25 per cent), “until economic slack is absorbed so that the two per cent inflation target is sustainably achieved,” which the bank estimates will not happen until sometime in 2023. This amounts to “forward guidance” about the path of the overnight rate target — an effort to reduce policy...
The Bank of Canada recently announced an end to two short-term lending programs it introduced at the start of the pandemic. Their winding down is welcome news: it means the bank has been successful in stabilizing financial markets. But now comes the tricky part: encouraging economic expansion, which traditionally is inflationary, even while reassuring buyers of Canadian governments’ bonds it will not help these governments inflate away the debts they are incurring. Key to such a strategy is recommitting, alongside the federal government, to the two per cent inflation target, even as short-term tactics may require temporary overshooting of it. Sticking with a target you may decide to miss temporarily is a mixed message, meaning the bank...
A global pandemic that has crushed the economy. A stock market improbably rising in an economic downturn. Is it the job of the Bank of Canada to address this contradiction, and the inequality that arises? Not directly, but the link between monetary policy and inequality is very real and affects the ability of the central bank to reliably hit its 2-per-cent inflation target. In March and April, when we went into complete lockdown because of the COVID-19 pandemic, GDP fell more than 18 per cent, the largest two-month economic decline on record. A myriad fiscal policies were put in place, including household income supports, such as the Canada Emergency Response Benefit, and business supports, such as the Canadian Emergency Wage Subsidy...
D’habitude, les révisions quinquennales de la cible de la Banque du Canada suscitent un long bâillement, sauf pour les mordus de la politique monétaire qui ressentent le petit frisson d’un changement possible, mais toujours déçu, tel un coït interrompu. Les crises qui se succèdent et l’essoufflement de la politique monétaire et de son outil – le taux d’intérêt – suggèrent des ajustements plus significatifs cette fois-ci, sans aller jusqu’à brûler les manuels de macroéconomie. Peintes en nuances subtiles, les décisions sur les objectifs et les moyens utilisés par la banque centrale exercent néanmoins un effet puissant sur le bien-être de tous, sur le pouvoir d’achat, sur l’emploi et sur la création de richesse. En période de...
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. If...