Transcript Document

Research Priorities at Bank of Canada:
Opportunities for Collaboration
Lawrence Schembri
International Department
Bank of Canada
December 2006
The MIT Central Bank Research Network 2006 Fall Conference
These are the views of the author, not the Bank of Canada
Research Themes/Questions are on Bank of
Canada website (updated annually)
1. Establish research priorities (via a consultation
process with management and staff)
2. Internal communication: Guide research staff
3. External communication: Inform the public and
other researchers
Bank of Canada Research Themes
• The monetary policy framework
• Global developments (& their impact on
• Productivity, labour supply, and potential output
• Financial system (stability & efficiency)
• Analytical tools (chiefly, modeling)
• Other: Payments & settlements systems /
Currency / Operations
The Monetary Policy Framework:
Key Questions
1. Inflation control target renewal (currently 1%-3%)
• Should the target inflation rate be lowered?
• Should a price level target be adopted?
Helps avoid the zero-lower bound problem
Reap the potential welfare gains from historydependent policy (no unit root in price level)
Practical issues:
Communications strategy
Monetary policy of trading partners
Secular changes in commodity prices or the prices of
manufactured goods
The Conduct of Monetary Policy:
Key Questions (continued)
2. Transparency (and communications)
What are the benefits of increased transparency?
Enhanced credibility, better inflation performance and
improved inflation/output variability trade-off
Lower interest rate risk premia
How best to increase transparency?
Publish paths for the policy interest rate and exchange
3. Monetary policy under uncertainty
Global Developments: Key Questions
1. Global imbalances
What are the underlying causes?
How will they be resolved? (USD depreciation)
What policies should be adopted to reduce the risk of a sharp
(disorderly) adjustment?
2. Globalization and inflation
What is the impact of Asian growth on domestic inflation (core
versus headline)?
3. Internal adjustment to relative price movements
Productivity, Labour Supply, and Potential
Output: Key Questions
• What are the current trend growth rates of labour
productivity, labour supply, and potential output
in Canada and its major trading partners and
how are these growth rates likely to evolve?
• Demographic factors, size of labour force, and
participation rates
• Migration
Financial System: Key Questions
• What framework can be used to identify and quantify
domestic and global macro risks to the Canadian
financial system and assess vulnerabilities?
Goal: A more rigorous framework
Need: Models of domestic financial system
• What factors are inhibiting the efficiency of the
Canadian financial system?
• How best to reform the IMF to promote a stable and
efficient market-based international monetary system?
Quota / Surveillance / Lending
Analytical Tools: Key Issues
• Canadian Projection Model – Terms of Trade Economic
Model (ToTEM)
Estimation of DSGE model
• Global Economic Model (GEM) Canadian Version
5 regions / energy and non-energy commodity prices
Simulation exercises: global imbalances, commodity prices
Feasibility study: Implementation using real-time data
• Use of micro-financial data on households and firms
Theme 1: Improving the Monetary Policy
• Question 1: What are the implications of Canada
adopting a lower target rate for inflation or a
price-level target in an integrated global
• Question 2: From the experience of other
countries, what factors [e.g., the extent of
transparency in communications, the use of
models] can be identified to have improved the
performance of monetary policy?
Theme 2: Analysing Major Global Economic
Developments and Their Impact on Canada
• Question 1: How can large current account deficits and
surpluses among major countries be resolved, or at
least, managed? In particular, what policies could be
adopted by governments [e.g., regarding U.S. fiscal
policy and Chinese exchange rate policy] to ensure an
orderly adjustment (or reduce the risk of a disorderly
• Question 2: What factors influence movements in the
Canadian dollar and how should monetary policy react
to them? What factors influence the choice of an
exchange rate regime?
Theme 2: Analysing Major Global Economic
Developments and Their Impact on Canada
• Question 3: What is the impact of the integration
of East Asia and other emerging markets on the
world prices of commodities and manufactured
goods, and on global inflation?
• Question 4: What are the prospects for and
determinants of output growth in the major
economies over the medium to long term? In
particular, what are the effects of differential
rates of demographic and productivity growth?
What lessons can be learned for Canada from
these international comparisons?
Theme 4: Financial System Stability
• Question 1: What measures can the IMF adopt to
promote a well-functioning market-based
international financial system?
• Question 2: How can global risks to the
Canadian financial sector be identified and their
impact assessed?