The heterogeneity of businesses and households impacts aggregate economic fluctuations and, in turn, is shaped by aggregate fluctuations. This view has emerged over the last decade with strong implications for the transmission and conduct of monetary policy. Our thematic review focuses on key...

Central banks in most advanced economies have reacted similarly to the increase in inflation that started in 2021. They initially looked through the rising inflation by leaving monetary policy relatively unchanged. Then, after inflation continued to increase, central banks pivoted by quickly...

We compare the performance of alternative monetary policy frameworks (inflation targeting, average inflation targeting, price level targeting and nominal GDP level targeting) in a tractable HANK model where incomplete financial markets and idiosyncratic earnings risk introduce precautionary...

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...

The neutral rate of interest is an important concept and communication tool for central banks. We develop a small open economy model with overlapping generations to study the determinants of the neutral real rate of interest in a small open economy. The model captures domestic factors such as...

We estimate the effects of economic uncertainty on time use and discuss its macroeconomic implications. Using data from the American Time Use Survey, we first infer cyclical variation in home production and leisure time. We then document that higher uncertainty increases housework and reduces...

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...

This paper outlines a strategic plan for the development of the fourth generation of Bank of Canada projection and policy analysis models. The plan features a new Canadian workhorse macroeconomic model as well as a suite of alternative models to better support a risk management approach to...

Macroprudential policies are often aimed at the traditional banking sector while nondepository financial institutions or shadow banks have limited or no prudential regulations. This paper studies the macroeconomic impact of household-side macroprudential tightening in the presence of unregulated...