C.D. Howe Institute

We develop a new series of Canadian monetary policy shocks for the time period 1986 to 2023. Our shocks are constructed as the daily change in the Nelson–Siegel yield curve factors on days of monetary policy events such as announcements of the short‐run policy rate and speeches by Bank of Canada officials. This allows us to look at both conventional and unconventional monetary policy. We find that tighter monetary policy lowers inflation and GDP. Monetary policy shocks, however, often twist the yield curve, potentially offsetting changes in the short‐run policy rate. Finally, speeches also tend to move the yield curve with similar effects on inflation and GDP as formal policy announcements.

Actuellement, les agrégats monétaire ne jouent aucun rôle dans l'analyse de la politique monétaire par la Banque du Canada ou dans sa communication au public. Cet article montre que négliger les agrégats monétaires est justifié lorsque la banque centrale atteint sa cible en moyenne, lorsque l'inflation est stable, et lorsque les attentes inflationnistes sont bien ancrées. Dans ce cas, le seul prédicteur fiable de l'inflation à un horizon approprié est la cible d'inflation elle-même. Par contre, en périodes d'inflation élevée comme celle que nous avons vécue depuis 2021, la monnaie contient de l'information concernant l’évolution de l'inflation qui est dangereuse d’écarter. Néanmoins, il faut interpréter cette information de façon judicieuse puisque la vitesse de circulation de la monnaie dépend des attentes et du degré de permanence des chocs monétaires. Note des rédacteurs : Le premier volume de Canadian Public Policy/Analyse de politiques a été publié en 1975. Ce volume-ci est le cinquantième. Pour commémorer cet événement, nous avons organisé une série de conférences qui sont publiées dans ce numéro spécial. Le professeur Ambler a donné cette conférence lors des réunions de l'Association canadienne d'économique à Winnipeg en juin 2023.

Les banques parallèles, telles que les fonds d’investissement, les fonds spéculatifs et les sociétés de financement hypothécaire, ont connu une croissance rapide ces dernières années. Le présent article examine le lien entre la politique monétaire et la croissance des banques parallèles et, par extension, la stabilité financière au Canada. S’appuyant sur les données mensuelles des marchés financiers de 1991 à 2015, l’article révèle tout d’abord qu’une mesure de contraction monétaire n’entraîne pas la réduction attendue des prêts aux entreprises et des prêts hypothécaires des banques parallèles, comme c’est le cas pour les crédits des banques à charte. Cette constatation laisse à penser que tandis que les banques parallèles ont gagné en importance, l’efficacité de la politique monétaire en matière de réduction de l’inflation a été compromise. Cet article fournit des éléments de preuves à l’appui de cette hypothèse en adoptant une approche vectorielle autorégressive bayésienne à deux étapes et à coefficients variant dans le temps.

Sustainable, inclusive growth in a free society requires well-functioning economic, environmental, public health and political systems. Each of these complex, adaptive systems is currently under severe stress and a “cascade” of tipping points is plausible. This chapter focusses specifically on the potential for spillovers from the economic to political spheres. There are currently many indicators of global economic and financial fragility, including the recent increase in inflationary pressures. Future negative supply shocks could trigger another crisis, characterized by either outright deflation or high inflation. The popular dissatisfaction arising from such developments could lead to a renunciation of democratic processes, already under threat. The chapter finishes with suggestions about policy measures that might promote both economic and political stability. Unfortunately, they will not be easily accepted.

The academic literature and the popular press emphasize high levels of household debt as a threat to financial stability. Using Canadian data, we show that the household debt service ratio is a better predictor of financial distress than measures focused on debt ratios. We construct a new financial vulnerability barometer for the Canadian economy in which the debt service ratio improves its ability to predict periods of financial vulnerability. We also show that new borrowing, while increasing economic growth in the short run, leads to an increase in debt servicing which contributes to slumps in activity and to financial instability. Finally, we show that the debt service ratio also has significant out-of-sample predictive power for growth and financial crises.

Virtual care has stabilized at about one-third of visits as the sixth wave of the pandemic in Canada ebbs from about twice that at the peak of the first wave but is up more than tenfold from pre-pandemic levels. This has created huge changes and challenges, which the author reviews in an attempt to make workable policy recommendations and find a balance among competing priorities. Falk revisits recommendations from his Health Canada report (Falk 2021), updating and expanding on recommendations concerning remuneration, licensure, equity and access. He introduces newly available data on specialty and primary care use and discusses the practical implications for change management and system development. He expands his recommendations for aggressive regulatory changes and standards for digital health and virtual care.

This is a brief response to the nine commentaries on my paper regarding virtual care as of the sixth wave of the COVID-19 pandemic (Falk 2022). Virtual care and its digital support infrastructure have had an iterative developmental path since the arrival of the pandemic in early 2020. Real-time policy making has been the norm in the field, and iteration by thoughtful opinion leaders seems a sensible way of continuing to move the discussion forward.

The quip from books on military history is that the generals plan to fight the next war as if it were going to be similar to the last war. The counterpart statement for those who develop regulatory initiatives to forestall banking crises is that they still do not understand that the cause of the debacles in the United States, Great Britain, Iceland, Ireland, and Spain in the autumn of 2008 and why Greece and Portugal had sovereign debt crises fifteen months later.

Background Healthcare resources are limited and unnecessary, and inappropriate emergency department use is now a highly visible healthcare priority. Individuals visiting the emergency department for mental health-related reasons are often amongst the most frequent presenters. In response, researchers and clinicians have created interventions to streamline emergency department use and several primary studies describe the effects of these interventions. Yet, no consensus exists on the optimal approach, and information on the quality of development, effectiveness, acceptability, and economic considerations is hard to find. The purpose of this study is to systematically review interventions designed to improve appropriate use of the emergency department for mental health reasons. Method A mixed-method systematic review using Joanna Briggs Methodology. Search combining electronic databases (EMBASE, MEDLINE, PsycINFO, CINAHL, HealthSTAR, PROQUEST, Cumulative Index to Nursing and Allied Health) and secondary searches (grey literature and hand search with consultation). Two independent reviewers will screen titles and abstracts using predetermined eligibility criteria and a third reviewer will resolve conflicts. Full texts will also be screened by two independent reviews and conflicts resolved in a consensus meeting with a third reviewer. A pilot-tested data extraction form will be used to retrieve data relevant to the study objectives. We will assess the quality and of all included studies. Data describing interventions will be summarized using logic models and reported narratively. Quality of development will be assessed using the Oxford Implementation Index. For data on intervention effectiveness, we will assess statistical heterogeneity and conduct a meta-analysis using a random effects method, if appropriate. For interventions that cannot be pooled, we will report outcomes narratively and descriptively. Qualitative data on acceptability will be synthesized using meta-aggregation and an economic evaluation of interventions will be done. The reporting of this protocol follows the PRISMA-P statement. Discussion Using a combined systematic review methodology and integrated knowledge translation plan, the project will provide decision makers with concrete evidence to support the implementation and evaluation of interventions to improve emergency department use for mental health reasons. These interventions reflect widespread priorities in the area of mental health care. Systematic review registration PROSPERO CRD42018087430

We use daily data on government bond yields and market-based inflation expectations to measure the announcement effects of unconventional monetary policy announcements in the euro area, focusing on their impact on ex-ante real interest rates. We find evidence of statistically significant effects of several announcements on real interest rates at maturities of two, five and ten years that operate partly through nominal interest rates and partly by raising inflation expectations. Announcements that exceeded market expectations significantly reduced nominal and real interest rates while announcements that disappointed expectations had the opposite effect.

Using a panel of macroeconomic data for Canada and its 10 provinces, we estimate the dynamic effects of monetary policy shocks from the mid‐1980s until the present. We then relate the change in the impact of these shocks to macroeconomic factors including demographics, specifically changes in the old age dependency ratio. We find that the inflation‐targeting regime has had an ambiguous effect on the impact of monetary policy shocks in Canada. On the other hand, changing demographics have unambiguously reduced the impact of monetary policy shocks. This can help to explain tepid inflation since the financial crisis and could eventually undermine the effectiveness of Canada's inflation targeting regime.

The way in which we pay for long-term care (LTC) services is going to come under enormous pressure as Canada's baby boomers age. Once baby boomers start to turn 75, in 2021, the demand for LTC services will see a sharp upward trend. A number of independent projections have demonstrated how this will put pressure on the public finances in coming years. It should be concerning to Canadians that we have not publicly discussed how we will make the tough choices to cope with these pressures. Moreover, it's equally troubling that our provincial LTC systems already are unable to cope with the current level of demand for services, with less than a decade before the first wave of boomers enter age groups where demand for LTC is high, and alternate level of care patients, made up mostly of frail elderly, occupying over 15% of Canadian hospital beds on a daily basis as they await care elsewhere. Although we think it is unlikely that Canadian provinces will add LTC to the list of fully subsidized health services (hospitals and doctors), we should do a better job of targeting the existing public subsidies for LTC - and do so while putting LTC financing on a more sustainable footing.

This paper re-examines the relationship between a firm's organizational form, not-for-profit versus for-profit, and its output quality. The Arrow-Hansmann theory of hidden action on the part of providers predicts higher quality for not-for-profit suppliers. This prediction has a puzzling lack of support in the empirical literature. We propose a theory that resolves the empirical puzzle and generates additional testable implications. The theory starts with the traditional assumptions of hidden action and supplier altruism. It then incorporates two additional features of real-world markets: hidden information on supplier ability to provide high quality and a variation across buyers in the degree of informational asymmetry. The central prediction of the theory is that quality has a higher variance across for-profits than across not-for-profits. Preliminary evidence from the US market for hospital care is consistent with this prediction.

Words are critical in how the public perceives the work of central banks and the quality of monetary policy. Press releases that accompany policy rate decisions and, where available, the minutes of central bank committee meetings, are focal points for the media in public discussions about the conduct of monetary policy. Using data from five countries, this chapter examines whether the language used by central banks has changed since the Global Financial Crisis (GFC) began. Briefly, the findings show that concerns about financial stability peaked just as the global financial crisis reached its zenith. However, concerns over uncertainty about the current and anticipated state of the economy have also risen over time. More generally, central bank speak became more aggressive throughout the crisis years. More conventional expressions about the current stance of monetary policy took a back seat to other concerns in central bank policy statements and minutes.

This paper explores the implications of recent developments in firm-based trade theory and empirics for trade policy and negotiations. While traditional trade theory focused on the country, and the new trade theory of the 1980s adopted the industry as the unit for analysis, the newest theory emphasizes the role of firms and firm heterogeneity in international trade. We describe insights from this reformulation of theory and the empirical literature that illuminates it. The realities of trade as now understood show the need for a new new trade policy. Evaluating trade at the level of the firm implies that overcoming firm-level fixed costs of trade and reducing uncertainty lead to increased trade along margins that generate the highest productivity, innovation and welfare gains. The traditional market access agenda ought now to be less important on the multilateral agenda than services, standards, trade facilitation, procurement and innovation policy. The analytical needs of a new new trade policy require new models and more access to firm-level data to formulate and evaluate the multifaceted impacts of trade policy.

This paper examines the interaction between local retail markets and population density in cities. We demonstrate that welfare costs of urban sprawl need not come only from road congestion or environmental externalities, as often suggested in the literature. A city also forgoes potential agglomeration economies in retail when it settles into a spatially sprawling equilibrium. Our theory predicts an additional spatial equilibrium where the city is inefficiently dense, characterized by strong retail agglomeration economies within the core.

We examine the effects of collective bargaining legislation, such as (among others) bans on replacement workers and reinstatement rights, on private sector strike activity and wage settlements using Canadian data from 1978 to 2008. Our estimates indicate that this legislation does not have a statistically significant effect on the incidence of strikes. However, we do find that some of the policy variables have a statistically significant effect on strike duration and wage settlements.

We study public-sector bargaining and contract outcomes using Canadian data from 1978 to 2008. We have a number of interesting results, but our principal findings are from our analysis of wage settlements. We find that the essential services designation, which only allows non-essential members of a bargain unit to strike, is associated with decreases in wages. Our estimates also suggest that there is an arbitration wage premium and that making adjustments to the ability to pay criterion used by arbitrators to determine awards does not affect this premium. We also discuss the implications of our estimates.

While antidumping laws were originally developed as the international trade analogue of domestic competition or antitrust policies, most vestiges of competition policy disappeared early in their evolution. Nonetheless, the formal justification for modern antidumping practice remains founded on countering “unfair” trading practices and preserving competitive markets. We update and consolidate a relatively thin literature that has examined this issue formally. Applying a “likelihood of predatory practice” index to the European Union’s use of antidumping proceedings over the period 2001 to 2010, we find more antidumping cases that suggest competition policy concerns than do previous studies, although these are still a minority.

Why did the conventional leverage indicators not pick up any meaningful signal of the mounting systemic risk before the subprime crisis? They remained almost unchanged in recent decades, whereas the banking landscape underwent a tremendous metamorphosis. Market-oriented banking is characterized by a new type of systemic risk, a risk which essentially evolves off the radar screen, i.e., off-balance sheet (OBS) (Calmès and Théoret Journal of Banking and Finance 34 (7): 1719–1728, 2010, 2011). In this article, we argue that the standard leverage indicators are not fitted to capture this kind of new banking risk. We introduce a new empirical framework which enables us to exploit the cyclical properties of elasticity leverage measures, while at the same time controlling for the noisy information they usually deliver. In a nutshell, thanks to the Kalman filter, we are able to compute optimal levels of bank leverage. This methodology delivers cyclical, forward-looking measures signalling systemic risk bubbles years before their burst. By properly accounting for all activities, including market-oriented banking, these time-varying leverage measures tend to systemically capture regulatory capital arbitrage and the OBS risk it entails.