Category Monetary policy
What should Canadian governments be doing right now?
My answer would be: nothing. Right now, the Bank of Canada is doing the grunt work of trying to keep financial markets from drying up, and there's not a lot that governments can do to help. And if the Bank were trying to provide monetary stimulus on top of all that, it could hardly do […]
Automatic monetary stabilisers and destabilisers
Since the Lehman Brothers bankruptcy on September 15, the Canadian dollar has depreciated by 12.5% against the USD, and the US trade-weighted exchange rate has appreciated by 6.7%. This may be a partial explanation for the high priority that US policy makers are giving to a fiscal stimulus package. The forex markets are working to […]
Paulson, Brown and Harper
Nick Rowe asks why the Brown plan is better than the Paulson plan: The original Paulson plan was for the US government to buy assets from US banks. The Brown plan is for the UK government to buy equity in UK banks. The consensus among economists seems to be that the Brown plan is better […]
Canadian banks: The prodigal sons’ older brothers
Okay, so we're not supposed to be worrying about moral hazard any more. But that doesn't mean it's less annoying to watch your competitors screw up, get bailed out and scoop your business. Ottawa weighs new measures for banks: Ottawa is facing pressure to introduce further backstops for the Canadian banking system, following a series […]
The federal government and the CMHC enter the fray
From a story in today's Globe and Mail: The federal government is moving to backstop the Canadian banks' capacity to lend money in an acknowledgment that not even the country's sturdy banking system is immune to the global financial crisis. A plan originally earmarked for Friday morning would see the government assume some mortgages currently […]
Liquidity, solvency, fire-sale and fair prices, and TARP: a simple model
Nick Rowe follows up his post on the origins of the crisis with some thoughts about how to deal with it: How is the Troubled Asset Relief Program supposed to resolve the problem of bank failures? I haven’t seen any clear answer, so thought I would sketch out the skeleton of a simple model where […]
Mark Carney explains it all for you
I've been at times unimpressed with some of his interest rate decisions, but today's speech on the financial crisis builds on his strength, namely, his knowledge of financial markets. It's worth reading in its entirety, but this paragraph in particular jumped out at me: Canadian institutions are in considerably better shape than their international peers. […]
Canada is facing inflation, not stagflation
In the US and in Europe, there’s good reason to worry about a 1970’s-style oil-price-induced negative supply shock that slows economic growth, but which also puts upward pressure on prices. This is why the Fed and (albeit to a lesser degree) the ECB have such a difficult job these days. The Bank of Canada’s job […]
Why did the Bank of Canada stop cutting interest rates?
Here's why: As I noted several weeks ago, the low y/y inflation rates we're seeing now are due to a one-off fall in prices that occurred when the CAD hit parity with the USD. Since then, core CPI has been growing faster than the Bank's 2% target. And this trend was clear even before yesterday's […]
The Bank of Canada stops and startles
The Bank of Canada held interest rates steady today. Going into the April 22 decision, I thought it was about time to stop the round of interest rates cuts, so I certainly agree with the decision. But I was a bit surprised at the move. Since his arrival at the Bank in February, Mark Carney […]
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