The BOC has released a review of exceptional policy actions taken during the pandemic and what it has learned for the future
They concluded:
- In the future, it could be clearer about limited circumstances under which it would conduct large-scale asset purchases during a crisis.
- This would guard against moral hazard, when market participants take bigger risks thinking banks will intervene if things go wrong
- Bank says it could improve programs by clearly distinguishing between asset purchases for restoring market function and those for monetary stimulus.
- Bank suggests outlining the purpose of each program and designing them to be temporary with a defined exit strategy.
- Bank acknowledges the challenge of measuring the precise impact of quantitative easing.
- Bank found quantitative easing helped keep longer-term rates lower than they otherwise would have been, aiding the economy.
- If quantitative easing is needed again, the Bank could link the size, pace, and end of purchases more clearly to the inflation outlook.
- Bank of Canada says its analysis shows policy actions, including quantitative easing, did not significantly push inflation above 2%.
- Bank emphasizes clearer forward guidance tied to the inflation outlook and better communication in the future.
- Bank's Governing Council agrees the bar for exceptional monetary tools should remain very high.
- Bank of Canada is improving forecasting tools and developing new economic models.
- New models will differentiate between inflation driven by higher demand and inflation from higher input costs.
Overall a good idea. Needless to say, the pandemic was unique, but it does not preclude another event of the magnitude in the future.
