OTTAWA — The Bank of Canada is launching what it calls an ambitious research agenda to further explore how other countries have responded to crisis at a time when conventional monetary policy is stretched to its limits.
Speaking at the University of Toronto today, senior deputy governor Carolyn Wilkins said the bank must be innovative with its existing monetary tools — particularly since structural changes have reduced the Canadian economy's potential to grow without boosting inflation.
In remarks prepared for a speech, Wilkins says if the Bank of Canada continues to focus on a target of two per cent annual inflation, then there's a greater chance than in the past that policy interest rates will tumble to zero.
She says the Bank of Canada is already taking a closer look at monetary policy tools used by central bankers around the world — such as asset-purchase programs (also known as "quantitative easing") and negative nominal interest rates (interest rates that are lower than inflation).
Wilkins also says the three-year plan aims to explore ways to respond to global changes already underway — such as China increasingly opening its financial markets to the world, the rise of alternative payment methods such as PayPal and the growing popularity of sharing services like Uber.
She says the bank will invest more in beefing up its economic modelling with a goal of helping to better inform federal authorities about policy decisions — whether they be monetary, fiscal or macro-prudential.