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Monetary Policy in Transition: Impacts and Risks of the Bank of Canada’s Policy Normalization

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GRI was pleased to have hosted Christopher Ragan and Warren Lovely in a discussion on the macroeconomic risks that Canada currently faces.

Prof Ragan (McGill) started off the webinar with his views on the Canadian economy’s current inflation situation. He sees four causes for the inflationary pressure: supply chain constraints, pent-up demand, unleashed expectations, increase in monetary base.   Although the first two items are beyond the central bank’s control, the second two are expected to be directly managed by them. Mr. Lovely (National Bank) then covered the recent history of rate tightenings by the Bank of Canada and compared and contrasted the new cycle to those in the past as potential guidance of what will come next.

Both speakers commented on how the Canadian economy has already rebounded since the start of the pandemic. For example, employment rates have already returned to pre-pandemic levels. Further, market pricing of rate rises from this overheating of the economy was speculated to possibly have gone too far, with today’s market having six to seven rate hikes for 2022.

 

Further reading

Are Dangers Lurking Within the Bank of Canada’s New Mandate? | Max Bell School of Public Policy – McGill University

Bank of Canada Preview – Better late than never (nbc.ca)

Speakers

Warren Lovely headshot

Warren Lovely
Managing Director, Chief Rates and Public Sector Strategist, National Bank of Canada Financial Markets

Christopher Ragan headshot

Christopher Ragan
Founding Director, Max Bell School of Public Policy & Associate Professor of Economics, McGill University