We introduce bounded rationality, along the lines of Gabaix (2020), in a canonical New Keynesian model calibrated to match Canadian macroeconomic data since Canada's adoption of inflation targeting. We use the model to provide a quantitative assessment of the macroeconomic impact of flexible...

Since 1991, the Bank of Canada has had an inflation‐targeting (IT) framework established by a joint agreement between the Bank and the Government of Canada. The framework is reviewed every five years as part of the process for renewing the inflation‐control agreement. This discussion paper...

Central banks face considerable uncertainty when conducting monetary policy. Some of the reasons for this include limitations of economic data, the unobservability of key macroeconomic variables such as potential output, structural changes to the economy and disagreements over the correct model...

Even before their deployment in major economies, one of the concerns that has been voiced about central bank digital currency (CBDC) is that it might be too successful and lead to bank disintermediation, which could intensify further in the case of a banking crisis. Some also argue that CBDC...

Inflation expectations play a vital role in determining inflation. Central bankers need to understand their intricacies and the information they can reveal. We look at the consistency of consumers' answers to questions on inflation expectations in the Bank of Canada's Canadian Survey of Consumer...

This paper summarizes the international evidence on the performance of quantitative easing (QE) as a monetary policy tool when conventional policy rates are constrained by the effective lower bound (ELB). A large body of evidence suggests that expanding the central bank's balance sheet through...

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. This paper reviews...

The output gap is a key variable used to assess inflationary pressures in the economy, but estimates in real time are subject to uncertainty and often revised significantly. This paper assesses whether questions in the Bank of Canada's Business Outlook Survey (BOS) can provide useful signals for...

The authors examine the institutional and governance framework of modern central banks to determine whether there are lessons that can be applied to the International Monetary Funds' (IMF’s) institutional framework. Such a comparison is appealing for two reasons. First, both central banks and...