Category Monetary policy
Churches and Central Banks
If a social scientist wanted to understand what happens in church, he could ask the churchgoers themselves for an account of what they do in church. But the social scientist's account of what happens in church need not be the same as the churchgoers' account. If an economist wanted to understand what happens in a […]
Why do central banks have assets?
If you look at the balance sheet of a central bank, you will see it has liabilities (mostly currency) and assets (normally mostly government bonds/bills). Why do central banks have assets? Do they need them? The wrong answer is that central banks need assets to "back" the value of the currency, and that paper currency […]
What makes a bank a central bank? Asymmetric redeemability and the will to act as one.
Both central banks and commercial banks issue liabilities that function as media of exchange. Why do we say that it is central banks, rather than commercial banks, that determine monetary policy; setting interest rates in the short run, and inflation in the long run? What makes a bank a central bank?
The Globe’s Konrad Yakabuski succumbs to the monetary union zombie
And so it continues. I noted on Wednesday that the Globe and Mail's lead editorial on exchange rate policy demonstrated a singular lack of understanding of the economics of exchange rate policy. A particularly astute commenter noted that it was only a question of time before the zombie notion of monetary union started lumbering across […]
Why can’t the Fed just buy yuan?
The title really says it all. And it's not a rhetorical question; I don't know the answer. But if the US is really concerned (H/T Mark Thoma) about the US dollar being too high against China's yuan, and it believes China is "artificially" preventing the yuan from appreciating against the dollar by foreign exchange market […]
Cheap talk and the exchange rate
Why does the Loonie appreciate when the Bank of Canada tightens monetary policy (relative to what was expected)? And depreciate when the Bank loosens monetary policy (relative to what was expected)? Before you conclude I've lost it, by asking such an easy question, consider the following weird thought-experiment.
Oil prices in currencies other than the USD
I've received a request to update my irregular series of graphs of movements in oil prices in currencies other than the USD. There's been a certain amount of movement in the oil and forex markets over the past few months, so I'm happy to oblige: The CAD and the euro have appreciated by about 20% […]
Economic illiteracy goes viral
It turns out that I may have been unfair to Patricia Croft (chief economist of RBC-whatever-it-is) over here. As Erin Weir points out, she's not the only high-profile professional economist to go from remarking on the relatively small quantity of Canada's official reserves to making the clanging error of concluding that the Bank of Canada's […]
The forex market is dumber than a sack of hammers
I've said it before, and I'm saying it again. The CAD is off by about two cents today: Canada is no Oz, mate: [W]hat seems to have caught currency markets off guard was the Bank of Canada’s commitment to keeping rates unchanged until at least next June and keeping its expected economic growth rate for […]
Disinflation continues, and the case for intervening in the forex markets gets stronger
The September CPI report was published last Friday, and the disinflationary trend of the last few months hasn't yet stopped: As I noted at the last interest rate announcement, Up until the crash in commodity prices, Canada ran a current account surplus, so an appreciating currency made sense. But now that we're running a current […]
Worthwhile Canadian Initiative 
Recent Comments