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The Progressive Economics Forum: Rochon on the Bank of Canada’s Decision to Lower the Rate of Interest

Louis-Philippe Rochon—who now blogs for CBC—argues that almost nobody had been expecting the Bank of Canada’s recent decision to lower the rate of interest.

His post can be found here.

Follow him on Twitter @Lprochon.

The Progressive Economics Forum: Banks and Balanced Budgets

The Bank of Canada surprised most analysts this week when it decided to cut rates by 25 basis points. The move comes after the price of oil has tumbled below $50 / barrel, oil producers announced huge cuts to business investment for 2015, Target announced a mass layoff of 17,600 workers in Canada, and the International Monetary Fund warned of a global economic slowdown.

The key message of the January Monetary Policy is that the Canadian economy needs stimulus. The Bank’s view of the Canadian economy stands in sharp contrast to that of the federal government, which is intent on (Read more…)

The Progressive Economics Forum: Low Oil Prices, Good or Bad for Canada?

Unless you’ve been hiding under a rock somewhere, you’re probably well aware that the price of oil has fallen dramatically, to less than $50 / barrel. What this means for Canada’s economic output & labour markets is not yet clear. But Stephen Poloz at the Bank of Canada has said that he expects the effect to be “not trivial”, and suggested that it might lower the Bank’s GDP expectations by around 0.3 percentage points. Deputy Governor Timothy Lane’s talk on January 13th is good background reading on this topic, and overall he suggested that the effect will be at least somewhat (Read more…)

The Progressive Economics Forum: Louis-Philippe Rochon’s Top 10 Economic Predictions for 2015

Louis-Philippe Rochon has written a provocative blog post for the CBC titled “Top 10 Economic Predictions for 2015.”

The post is available here.

The Progressive Economics Forum: Bank of Canada, Exports, and LMI

Much has been made about Stephen Poloz’s decision to abandon ‘forward guidance’ in Bank of Canada rate setting announcements for the time being. Critics bemoan the loss of direction from the Bank. But Poloz’s comments yesterday were chock full of guidance on how the Bank sees Canada’s economic situation.

Having been disappointed by the failure of Canada’s export sector to resume investment or show any signs of life, researchers at the Bank investigated the performance of 2,000 product categories, and found that about 500 of those had very nearly been wiped out following the 2008 – 2009 recession. Further investigation (Read more…)

The Progressive Economics Forum: Problematic sources of recent real wage growth

The past 18 months have seen real wages increase in Canada. (Yes, I double-checked.) Indeed, real wages have gone through two distinct phases of growth since the financial crisis hit the global economy in 2007. This may be surprising as we have been accustomed to hearing about the stagnation of real wages and the “decoupling” of wages from productivity gains over the decades preceding the crisis.

These real wage gains, however, are not that surprising once we take a look at the behaviour of inflation since the crisis. Stephen Gordon has taken a look at this over at Maclean’s (Read more…)

Political Eh-conomy: Myths of central banking

The Bank of Canada has been in the news lately – or, more precisely, the news has been full of other well-placed people telling our central bankers what to do. In an interview on CTV this past weekend, Jim Flaherty made comments (later retracted) that Canada’s central bank will be pressured to raise interest rates sooner rather than later. On Tuesday, the influential, pro-business Conference Board of Canada also came out with some advice. A Globe and Mail editorial written its chief economist suggested, somewhat surprisingly, that the Bank should target a higher level of inflation, up to 4% from (Read more…)

The Progressive Economics Forum: Secular Stagnation

I have written a couple of pieces for Economy Lab in the Globe and Mail recently on the issue of secular stagnation. (Links below)

The term was coined by the pioneering American Keynesian Alvin Hansen who argued that the US economy of the late 1930s faced a long period of stagnation due to a chronic, structural gap between aggregate supply (the capacity of the economy to produce) and aggregate demand.

Keynesians of the time argued that the solution to stagnation underpinned by low private investment was public investment led growth, and were vindicated to a degree when World War Two (Read more…)

The Progressive Economics Forum: A Trillion Dollar Coin for Canada?

Arun here…breaking radio silence to share with you a thought-provoking piece by Larry Kazdan, a graduate of York University in sociology and history, and currently a Council Member with the World Federalist Movement-Canada, an organization that monitors developments at the United Nations and advocates for more effective global governance.

Our friend and fellow blogger Keith Newman recently wrote some words that set up Larry’s piece nicely so rather than trying to reinvent the wheel, I will let Keith introduce Larry’s work and then urge readers to read the piece in full.

****************************** The trillion dollar coin solution for the US (Read more…)

Accidental Deliberations: Sunday Afternoon Links

Assorted content for your Sunday reading.

- Alex Pareene muses that Lawrence Summers would be an entirely worthy nominee to oversee U.S. monetary policy – for a very specific set of criteria: Laws and policies he championed directly led to the financial crisis, and the same laws and policies caused that crisis to kick off a global recession that we still have not crawled out of. He is more responsible than almost anyone else alive — it’s him, Robert Rubin, Phil Gramm and Alan Greenspan, basically — for the severity of the crisis. I can’t think of a better (Read more…)

The Progressive Economics Forum: Rebutting Raganomics

Today, I had the following commentary posted on The Globe and Mail’s Economy Lab:

The loonie is overvalued and the Bank of Canada has room to act

On Tuesday, Christopher Ragan characterized the notion of an overvalued Canadian dollar as a “seductive myth” that the Bank of Canada should not act to address. I have made the case that we should broaden our central bank’s mandate to include managing the exchange rate and welcome the opportunity to advance this important policy debate.

Significantly, Ragan agrees that currency “depreciation would spur Canadian exports and provide a much-needed stimulus to (Read more…)

The Progressive Economics Forum: Inflation Collapse Confounds Monetary Hawks

Statistics Canada reported today that inflation collapsed to just 0.4% in April. The Bank of Canada’s core inflation rate, which excludes volatile items, fell to 1.1%.

Continued low inflation does not provide a rationale to raise interest rates. Perhaps for that reason, Canadian monetary hawks have shifted their rationale for higher interest rates.

In 2011, the C. D. Howe Institute released a paper entitled Overnight Moves: The Bank of Canada Should Start to Raise Interest Rates Now. It argued:

If more ‘no-change’ decisions are made by the Bank of Canada regarding its policy interest rate, inflation expectations might (Read more…)

The Progressive Economics Forum: Polozogistics: Nine Thoughts About the Choice of the New Bank of Canada Governor

 

1. He’s Number Two: Stephen Poloz was widely acknowledged in economic and political circles as the second-best choice for the top job at the Bank of Canada. So the surprise was not that he was chosen. The surprise was, Why Not Tiff Macklem? Will someone please find out and tell the rest of us?

2. Doctrinaire [or not?] on Inflation Targeting: He thinks it’s “sacrosanct.” Having studied with monetary policy guru David Laidler at the University of Western Ontario, and been part of the Bank of Canada team that brought inflation targeting to a neighbourhood near (Read more…)

The Progressive Economics Forum: Breaking The Taboo on Monetizing Deficits

In a very long and fascinating speech which has been amplified by Martin Wolf in the FT, Lord Adair Turner seeks to break the taboo on discussion of the potential ability of central banks to monetize fiscal deficits. His argument boils down to a political economic one … Some monetization might be useful in certain circumstances such as in Japan over the recent past, but there is a clear danger of going too far and stoking inflation if the central bank becomes too subject to political pressures.

He makes the interesting point that QE in the US and the UK

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The Progressive Economics Forum: What Does the Bank of Canada Do?

The Board of Directors of the Bank of Canada have retained Odgers Berndtson to seek a new Governor, and have placed an ad in the Globe and Mail, the Economist and La Presse.

The wording of the advertisement is questionable.

First, it states that “the Bank of Canada is the pre-eminent macro-economic institution in Canada.”

Really?

The Bank of Canada is undeniably important, but it has absolutely no role to play in fiscal policy which is entirely the responsibility of the Minister and Department of Finance.

Moreover, the inflation target which anchors monetary policy is set jointly by the

. . . → Read More: The Progressive Economics Forum: What Does the Bank of Canada Do?

The Progressive Economics Forum: Mark Carney’s tenure and the state of monetary policy

Mark Carney’s tenure as Governor of the Bank of Canada overlaps some challenging economy history. Appointed in early 2008 just as the US housing bubble was popping, Carney took the helm in time for a financial crisis that brought the global economy to its knees. We are still living that history in terms of a [...] . . . → Read More: The Progressive Economics Forum: Mark Carney’s tenure and the state of monetary policy

The Progressive Economics Forum: Guest Blog: Selective Amnesia at Bank of Canada

The following is a guest blog from Marc Lavoie and Mario Seccareccia at the University of Ottawa:

In a speech delivered on October 4th to the Winnipeg Chamber of Commerce (see: http://www.bankofcanada.ca/2012/10/speeches/a-measure-of-work/), the senior deputy governor of the Bank of Canada, Tiff Macklen, has offered some self-congratulatory remarks, by arguing that the near-zero inflation policy pursued by the Bank under the leadership of John Crow had given rise to a healthy and more efficient labour market, with low unemployment rates. Senior deputy Governor Macklem has only one regret: labour productivity growth in Canada has been dismal

. . . → Read More: The Progressive Economics Forum: Guest Blog: Selective Amnesia at Bank of Canada

Accidental Deliberations: Friday Morning Links

Assorted content to end your week.

- Yes, it’s alarming that the Cons are eliminating environmental assessments on a huge number of projects. But even more worrisome is the complete lack of a connection between the basis for the exclusion and the possible environmental impacts: Ottawa is also walking away from conducting assessments on various agricultural and municipal drainage works, log-handling facilities, small-craft harbour and marina development and expansion, the sinking of ex-warships as artificial reefs, the disposal of dredged material, and a 73-hectare mixed-use development on Tsawwassen First Nation lands.

Under the new legislation, BC Hydro also no longer

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The Progressive Economics Forum: Broadening the Bank of Canada’s Mandate

Yesterday, Mike Moffatt took to The Globe and Mail’s “Economy Lab” in response to my suggestion that the Bank of Canada should moderate the exchange rate. (Perhaps his motive for encouraging me to seek the Saskatchewan NDP leadership was to get me as far as possible from the levers of monetary policy.)

My rebuttal of Mike’s rebuttal appears in today’s Economy Lab:

Mike Moffatt’s friendly rebuttal of my comments on last week’s inflation report advances an important debate about Canadian monetary policy and the exchange rate. In fact, I believe that we agree on several key aspects of

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The Progressive Economics Forum: Prices Decline Yet Again

Statistics Canada reported today that, for a third consecutive month, consumer prices declined and the inflation rate fell below 2%. In July, the inflation rate was 1.3% and the Bank of Canada’s core rate was 1.7%.

Gasoline and natural gas prices, which have been lower this summer than last, dragged down the overall Consumer Price Index. However, there is little indication of inflationary pressure anywhere.

Even those categories with the largest price increases were in line with the Bank of Canada’s 2% target. Food prices and household expenses rose 2.1% over the past year. The inflation rate

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The Progressive Economics Forum: CPI Deflates Case for Rate Hike

Today’s report that the national inflation rate fell to 1.2% in May deflates calls for higher interest rates to reduce inflation. The central bank’s core rate was 1.8%, also below the 2% target.

The other argument for an interest-rate hike was to moderate mortgage lending and the housing market. However, the federal government’s move to reign in mortgage lending through the Canada Mortgage and Housing Corporation removes the pressure for the Bank of Canada to do so through monetary policy.

An important reason to keep interest rates low is to avoid upward pressure on the Canadian dollar, which

The Progressive Economics Forum: Marc Lavoie and Monetary Economics

There is a very interesting interview with PEF’s own Marc Lavoie here on the Naked Capitalism site on his new book.

Monetary Economics was co-authored by Marc with the late Wynne Godley. (Make sure to start by linking back to Part 1.)

The Progressive Economics Forum: Complete details of 2008-09 Bank Support

Readers of this blog will have hopefully read my report “The big banks big secret” which examines the $114 billion that Canada’s banks received during the 2008-09 financial crisis. Its major finding was that at some point three of Canada’s five big banks had received support worth more than their market capitalization, or the value of all the stock, at around $20-25 billion per bank.

As I noted in the report both the Bank of Canada and CMHC have refused to release the secret details of their support programs including how much each bank got, when they got it and what

. . . → Read More: The Progressive Economics Forum: Complete details of 2008-09 Bank Support

The Progressive Economics Forum: GDP: Austerity Bites

Canada’s economy grew by half a percent in the first quarter of 2012, staying on pace for unimpressive annual growth of two percent.

The good news is that business investment was strong, at least on a seasonally-adjusted basis. (As usually happens in the first quarter, the actual dollar value of business investment actually decreased.)

Unfortunately, the other major components of GDP weakened. Government spending on goods and services fell by 0.4%, its largest quarterly decline since 1997. Fiscal austerity is starting to take a bite out of Canadian economic growth.

Consumer spending grew by an anaemic 0.2%,

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The Progressive Economics Forum: Inflation On Target; Exchange Rate Off Target

Today, Statistics Canada reported an annual inflation rate of 2%, precisely in line with the Bank of Canada’s target. With inflation under control and renewed risks to the global economy, there is little rationale for the central bank to raise interest rates anytime soon.

In fact, the Bank of Canada should now be more concerned about the exchange rate than the inflation rate. Recent debate about Dutch disease highlights the Canadian dollar’s overvaluation.

While the loonie trades for about 98 U.S. cents on financial markets, the OECD calculates that its real purchasing power is equivalent to only 76 U.

. . . → Read More: The Progressive Economics Forum: Inflation On Target; Exchange Rate Off Target