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- BoC's Senior Deputy Governor Wilkins: Monetary policy is ill-equipped to deal with sector-specific issues
BoC's Senior Deputy Governor Wilkins: Monetary policy is ill-equipped to deal with sector-specific issues
- Pandemic reveals limits of BoC's monetary policy to solving all problems
- Review of alternative monetary policy options has identified some of strengths and weaknesses of different frameworks; but no single framework dominates on all margins
- Economic crisis has made it crystal clear that central banks are likely to run out of conventional firepower if we see an economic downturn in low-interest-rate world
- Another challenge is that long periods of low interest rates encourage investors to take on risk that may be excessive; we see that now with high levels of indebtedness
- We are running a horse race among alternative frameworks for monetary policy. These include average inflation targeting, price-level targeting, an employment-inflation dual mandate and nominal GDP growth and level targeting; another possibility is to raise the inflation target. We are evaluating these frameworks against a clear set of criteria
- We have a clear target -2 percent inflation - which means businesses and families know what we aim to achieve with our actions
- Our framework is flexible in terms of how fast we aim to return inflation to target
- Seeing unconventional monetary policy tools in action during COVID-19 has put renewed focus on how they’re impacting both asset prices and decisions on borrowing and lending
- Monetary policy is ill-equipped to deal with sector-specific issues; we need to take them into account in our monetary policy decisions, but our focus must be on the macroeconomy to support sustainable growth and price stability
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