Monetary policy implementation

• Relationships in the Interbank Market

  Staff Working Paper 2016-33 Jonathan Chiu, Cyril Monnet

  The market for central bank reserves is mainly over-the-counter and exhibits a core-periphery network structure. This paper develops a model of relationship lending in the unsecured interbank market. In equilibrium, a tiered lending network arises endogenously as banks choose to build relationships to insure against liquidity shocks and to economize on the cost to trade in the interbank market.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Interest rates, Monetary policy implementation, Transmission of monetary policy JEL Code(s): E, E4, E5

• 16 May 2016 Estimating Canada’s Effective Lower Bound

  Bank of Canada Review - Spring 2016 Jonathan Witmer, Jing Yang

  Recently, the Bank of Canada has estimated the effective lower bound (ELB) on its policy interest rate to be about -50 basis points. This article outlines the analysis that underpins that estimate by quantifying the costs of storing and using cash in Canada. It also explores how some international markets have adapted to negative interest rates, issues surrounding their implementation, as well as their transmission to other interest rates in the economy. Finally, it discusses theoretical ideas on how the ELB could be reduced further.

  Content Type(s): Publications, Bank of Canada Review Article Topic(s): Monetary policy framework, Monetary policy implementation, Transmission of monetary policy JEL Code(s): D, D5, D53, E, E4, E43, E5, E52, E58

• Estimating Canada’s Effective Lower Bound

  Staff Analytical Note 2015-2 Jonathan Witmer, Jing Yang

  In 2009, the Bank of Canada set its effective lower bound (ELB) at 25 basis points (bps). Given the recent experience of Sweden, Denmark, Switzerland and the euro area with negative interest rates, we examine the economics of negative interest rates and suggest that cash storage costs are the source of a negative lower bound on interest rates.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Central bank research, Monetary policy framework, Monetary policy implementation JEL Code(s): D, D5, D53, E, E4, E41, E43, E5, E58

• 19 November 2015 The Effect of Regulatory Changes on Monetary Policy Implementation Frameworks

  Bank of Canada Review - Autumn 2015 Meyer Aaron, Annick Demers, Sean Durr

  This article provides an analysis of some recent banking regulatory initiatives that are likely to influence the activities of financial intermediaries and the effectiveness of central bank monetary policy implementation frameworks. Although the effects of individual regulations can be anticipated in most cases, the combined regulatory impact is not yet clear. Central banks should, however, be able to accommodate the effects of the emerging regulatory environment within their existing policy implementation frameworks.

  Content Type(s): Publications, Bank of Canada Review Article Topic(s): Financial Institutions, Financial markets, Financial system regulation and policies, Monetary policy implementation JEL Code(s): E, E5, E52, G, G2, G21, L, L5, L50

• Reputational Risk Management in Central Banks

  Staff Discussion Paper 2015-16 Jill Vardy

  This paper discusses reputational risk in the context of central banking and explains why it matters to central banks. It begins with a general discussion of reputational risk within the broader framework of risk management.

  Content Type(s): Staff Discussion Papers Topic(s): Credibility, International topics, Monetary policy implementation JEL Code(s): E, E5, E52, E58

• Forward Guidance at the Effective Lower Bound: International Experience

  Staff Discussion Paper 2015-15 Karyne B. Charbonneau, Lori Rennison

  Forward guidance is one of the policy tools that a central bank can implement if it seeks to provide additional monetary stimulus when it is operating at the effective lower bound (ELB) on interest rates. It became more widely used during and after the global financial crisis.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Monetary policy framework, Monetary policy implementation, Transmission of monetary policy, Uncertainty and monetary policy JEL Code(s): E, E4, E43, E5, E52, E58, E6

• Effects of Funding Portfolios on the Credit Supply of Canadian Banks

  Staff Working Paper 2015-10 H. Evren Damar, Césaire Meh, Yaz Terajima

  This paper studies how banks simultaneously manage the two sides of their balance sheet and its implications for bank risk taking and real economic activity. First, we analyze how changes in funding affect the supply of bank loans.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Financial Institutions, Financial stability, Financial system regulation and policies, Monetary policy implementation JEL Code(s): E, E5, E52, G, G2, G21

• Expectations and Monetary Policy: Experimental Evidence

  Staff Working Paper 2013-44 Oleksiy Kryvtsov, Luba Petersen

  The effectiveness of monetary policy depends, to a large extent, on market expectations of its future actions. In a standard New Keynesian business-cycle model with rational expectations, systematic monetary policy reduces the variance of inflation and the output gap by at least two-thirds.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Business fluctuations and cycles, Monetary policy implementation, Transmission of monetary policy JEL Code(s): C, C9, D, D8, D84, E, E3, E5, E52

• Central Bank Communications Before, During and After the Crisis: From Open-Market Operations to Open-Mouth Policy

  Staff Working Paper 2013-41 Ianthi Vayid

  The days when secrecy and opacity were the bywords of central banking are gone. The advent of inflation targeting in the early 1990s acted as the catalyst for enhanced transparency and communications in the conduct of monetary policy.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Central bank research, Credibility, Financial stability, Inflation targets, Monetary policy framework, Monetary policy implementation JEL Code(s): E, E5, E52, E58

• 14 November 2013 Monetary Policy Decision Making at the Bank of Canada

  Bank of Canada Review - Autumn 2013 John Murray

  The process that the Bank of Canada follows to make its monetary policy decisions has evolved over time. This process is very information-intensive and collaborative, drawing on the expertise, judgment and analysis of many people. This article describes monetary policy decision making at the Bank, and discusses some common misconceptions about monetary policy and the process.

  Content Type(s): Publications, Bank of Canada Review Article Topic(s): Monetary policy framework, Monetary policy implementation