Inflation: a primer

The economic effects of COVID-19 have triggered many questions regarding price dynamics in the aftermath of the pandemic Inflation is affected by many domestic and foreign factors, which often differ between countries. CPI inflation is the most common measure of inflation but is it the most accurate or useful? The COVID-19 pandemic has caused substantial …read more

Could the pandemic cement an era of financial repression?

Financial repression is a tried and tested tool for the management of extreme debt loads Debt levels are rising to such extremes as governments respond to the COVID-19 pandemic Expectations of high post-pandemic growth may be overly optimistic and austere policy looks untenable We may therefore venture further down the garden path into financial repression …read more

Government liabilities: the full picture

The debt-to-GDP ratio does not represent the full scope of government liabilities, potentially calling for alternative measures of a government’s default risk. Monetary policy constraints and demographic pressures are likely to call for increases in fiscal spending, further straining governments’ balance sheets The sustainability of a government’s balance sheet is likely to depend on the origin …read more

Modern Monetary Theory: it’s a currency question

Modern Monetary Theory (MMT) is a political reaction to the constraints and costs of private financing for public spending. It is the explicit position that fiscal policy and monetary policy should be coordinated in order to avoid these constraints and costs. History is relevant. The future is untold. Money is currency is money. I hope …read more

Canadian elections highlighting the risk of consensus views

The Canadian economy has been growing at a moderate pace however household debt has reached historical highs, raising the question of its sustainability and risks to the economy There is clear consensus among market participants and Canadian investment professionals regarding the outcome of the election The 2016 US elections and Brexit vote have resulted in …read more

Why is FX volatility low? An econometric model

2018 has been an eventful year, with an ongoing trade war, tightening monetary policy from the Federal Reserve, increasing pressure in the Brexit negotiations, and a new Italian government which has resurrected fears about the stability of the Eurozone Despite this, G10 FX volatility has remained remarkably subdued In this blog post, we construct an econometric model to …read more

Terminating NAFTA: What would the impact on Canada be?

• As NAFTA negotiations become increasingly fraught, the risk of a complete termination by US President Donald Trump is increasing
• The long-run impact of such a termination is likely to be limited, based on the MFN tariffs the US could apply
• The most likely impact would be in terms of the real economy, as the shock generated would hit consumption, spook investment and delay the Bank of Canada’s hiking cycle.
• To investigate the magnitude of this effect, we model the impact on real economic variables and interpret the impact on the Canadian dollar. Our results suggest that a 6% depreciation of the Canadian dollar against the US dollar could be justified.