Arbeitspapier
The neutral rate of interest in Canada
A measure of the neutral policy interest rate can be used to gauge the stance of monetary policy. We define the neutral rate as the real policy rate consistent with output at its potential level and inflation equal to target after the effects of all cyclical shocks have dissipated. This is a medium-to longer-run concept of the neutral rate. Under this definition, the neutral rate in Canada is determined by the longer-run forces that influence savings and investment in both the Canadian and global economies. Structural forces have likely reduced the neutral rate by more than a percentage point since the mid-2000s. The Bank's estimates of the real neutral policy rate currently stand in the 1 to 2 per cent range, or 3 to 4 per cent in nominal terms. The current gap between the policy rate and the neutral rate reflects policy stimulus in response to significant excess supply and in the face of continuing headwinds. As long as these headwinds persist, a policy rate below neutral will be required to maintain inflation sustainably at target.
- Language
-
Englisch
- Bibliographic citation
-
Series: Bank of Canada Discussion Paper ; No. 2014-5
- Classification
-
Wirtschaft
Money and Interest Rates: General
Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Interest Rates: Determination, Term Structure, and Effects
Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Monetary Policy
Central Banks and Their Policies
- Subject
-
Interest rates
Transmission of monetary policy
Taux d’intérêt
Transmission de la politique monétaire
- Event
-
Geistige Schöpfung
- (who)
-
Mendes, Rhys R.
- Event
-
Veröffentlichung
- (who)
-
Bank of Canada
- (where)
-
Ottawa
- (when)
-
2014
- DOI
-
doi:10.34989/sdp-2014-5
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Mendes, Rhys R.
- Bank of Canada
Time of origin
- 2014
Other Objects (12)
Consumer interest rates and retail mutual fund flows
McCallum rules, exchange rates, and the term structure of interest rates
Changes in Payment Timing in Canada’s Large Value Transfer System
Combining Canadian interest-rate forecasts
Interest rate uncertainty as a policy tool
High-frequency real economic activity indicator for Canada
Fundamental drivers of existing home sales in Canada
Markups in Canada: Have they changed and why?
What explains month-end funding pressure in Canada?
Non-bank financial intermediation in Canada: An update
A structural VAR approach to core inflation in Canada
Financial conditions and the money-output relationship in Canada
Consumer interest rates and retail mutual fund flows
McCallum rules, exchange rates, and the term structure of interest rates
Changes in Payment Timing in Canada’s Large Value Transfer System
Combining Canadian interest-rate forecasts
Interest rate uncertainty as a policy tool
High-frequency real economic activity indicator for Canada
Fundamental drivers of existing home sales in Canada
Markups in Canada: Have they changed and why?
What explains month-end funding pressure in Canada?
Non-bank financial intermediation in Canada: An update
A structural VAR approach to core inflation in Canada
Financial conditions and the money-output relationship in Canada
Consumer interest rates and retail mutual fund flows
McCallum rules, exchange rates, and the term structure of interest rates
Changes in Payment Timing in Canada’s Large Value Transfer System
Combining Canadian interest-rate forecasts
Interest rate uncertainty as a policy tool
High-frequency real economic activity indicator for Canada
Fundamental drivers of existing home sales in Canada
Markups in Canada: Have they changed and why?
What explains month-end funding pressure in Canada?
Non-bank financial intermediation in Canada: An update
A structural VAR approach to core inflation in Canada