Category Monetary policy
The Bank of Canada says: “Quantitative easing if necessary, but not necessarily quantitative easing”
The Bank of Canada released its eagerly-anticipated Monetary Policy Report (pdf) today, in which it laid out its contingency plans for quantitative easing. But it seems pretty clear that – notwithstanding its jaw-dropping estimate of annualised 2008Q1 GDP of growth of -7.3% – it doesn't intend to be implementing those plans anytime soon. Here's why:
Zero (effectively, finally); What Next for the Bank of Canada?
So, the Bank of Canada has finally cut the overnight rate target to 0.25%, which is as low as it feels technically able to go, so is effectively zero, by its reckoning. I'm not going to discuss those technical issues on the problems with 0.00% vs. 0.25%, because it's not my comparative advantage. But this […]
An alternative universe with gold price control
Imagine you are a monetary economist, working in a central bank, and you wake up one morning and find yourself in an alternative universe. You don't realise it's an alternative universe at first, because everything looks the same. But when you get into work and go to the meeting of the monetary policy committee, you […]
Interest rate control: maybe theory was right after all?
There used to be a debate over interest rate control vs. base control of monetary policy. We always knew (at least some of us always knew) that interest rate control couldn't work in theory, but it seemed to work in practice, so eventually even the die-hard defenders of base control quietened down, or were ignored, […]
Say’s Law, Walras’ Law, and monetary policy
"Deficiencies of aggregate demand are always and everywhere a monetary phenomenon". There's an excess supply of newly-produced goods, and an excess demand for money. But what exactly does an excess demand for money mean? And what does it mean for the effectiveness of monetary policy?
The evolution of the Bank of Canada’s balance sheet
Jim Hamilton has a couple of recent posts ([1], [2]) at Econbrowser documenting the remarkable changes in the Fed's balance sheet during the financial crisis, so I decided to take take a closer look at the effects of the Bank of Canada's activities on its balance sheet. The asset side seems straightforward enough, and is […]
Why failed bond auctions are good news
Suppose an increased supply of government bonds to finance deficit spending were met with an increased demand for government bonds from the private sector, so that interest rates stayed the same, and the bond issue were fully subscribed. That is exactly what would happen for a bond-financed tax cut under full Ricardian Equivalence, for example. […]
Why does liquidity matter so much?
This question has been bugging me for the last few months. I see the financial crisis as largely a liquidity crisis. People only want to hold the most liquid assets, and shun the illiquid. So liquid assets have high prices and low yields; and illiquid assets have low prices and high yields. But if we […]
Is quantitative easing trying to raise or lower interest rates?
The Bank of England has switched to quantitative easing. It is buying long bonds (gilts). What would count as a signal of success? We could argue that falling yields would signal success, because it is trying to reduce long interest rates to stimulate investment. But we could equally argue that rising yields would signal success, […]
Temporary vs. permanent quantitative easing
A permanent increase in the money supply (or one that is expected to be permanent) will have a different, and bigger, effect today than a temporary increase in the money supply (or one that is expected to be temporary). To say the same thing a different way, an increase in the expected future money supply […]
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