OTTAWA — Bank of Canada governor Stephen Poloz says private and public debt loads are closely influenced by the mixture of how much the government spends and the level of monetary policy, such as the key interest rate.
In prepared remarks of his lecture Saturday at the University of Ottawa, Poloz says the best combination of monetary and fiscal approaches varies depending on the economic situation.
His lecture comes as many countries around the world adjust their fiscal and monetary policy mixes in hope of boosting stagnant economic growth.
The Trudeau government has shifted gears in recent months to seek deficit-fuelled growth by committing billions more dollars toward economy-enhancing investments such as infrastructure.
In his lecture, Poloz says a Bank of Canada model shows the combination of more government spending and higher interest rates leads to lower private-sector debt and higher public debt.
He says if the policy levels are reversed then private debt would climb and government debt would slide.
Poloz stresses that finding the right balance is complex for policy-makers since high levels of private and public debt can both create financial stability concerns in an economy.