The BOC has released a review of exceptional policy actions taken during the pandemic and what it has learned for the futureThey concluded:
- In the future, it could be clearer about limited circumstances under which it would conduct large-scale asset purchases during a crisis.
- This would guard against moral hazard, when market participants take bigger risks thinking banks will intervene if things go wrong
- Bank says it could improve programs by clearly distinguishing between asset purchases for restoring market function and those for monetary stimulus.
- Bank suggests outlining the purpose of each program and designing them to be temporary with a defined exit strategy.
- Bank acknowledges the challenge of measuring the precise impact of quantitative easing.
- Bank found quantitative easing helped keep longer-term rates lower than they otherwise would have been, aiding the economy.
- If quantitative easing is needed again, the Bank could link the size, pace, and end of purchases more clearly to the inflation outlook.
- Bank of Canada says its analysis shows policy actions, including quantitative easing, did not significantly push inflation above 2%.
- Bank emphasizes clearer forward guidance tied to the inflation outlook and better communication in the future.
- Bank’s Governing Council agrees the bar for exceptional monetary tools should remain very high.
- Bank of Canada is improving forecasting tools and developing new economic models.
- New models will differentiate between inflation driven by higher demand and inflation from higher input costs.
Overall a good idea. Needless to say, the pandemic was unique, but it does not preclude another event of the magnitude in the future.
This article was written by Greg Michalowski at www.forexlive.com. Source