IDEAS home Printed from https://ideas.repec.org/p/clg/wpaper/2022-03.html
   My bibliography  Save this paper

The Twin Supply Shocks to Canada's Post-Pandemic\\Inflation and Monetary Policy

Author

Listed:
  • Trevor Tombe

    (University of Calgary)

  • Yu (Sonja) Chen

    (University of Calgary)

Abstract

Canada's inflation rate rose from 3.1 percent in June 2021 to 8.1 percent one year later. Monetary policy is consequently tightening. We explore some causes and consequences of these developments. Using detailed price and quantity data, we separately identify demand- from supply-driven inflation. We find two-thirds of Canada's accelerating inflation since Q1 2020 is supply-driven, which complicates monetary policy. Another supply shock --- large increases in bank reserves --- may complicate it further. We estimate that ample reserves and rising interest rates may cause large financial losses for the Bank of Canada. This creates novel reputational and communications challenges for the Bank and highlights underappreciated connections between monetary and fiscal policy. These twin supply shocks --- to consumer products and overnight balances --- are important aspects of Canada's recent inflation and monetary policy experiences.

Suggested Citation

  • Trevor Tombe & Yu (Sonja) Chen, "undated". "The Twin Supply Shocks to Canada's Post-Pandemic\\Inflation and Monetary Policy," Working Papers 2022-03, Department of Economics, University of Calgary, revised 01 Sep 2022.
    • Handle: RePEc:clg:wpaper:2022-03
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Keywords

    inflation; supply shocks; monetary policy; Bank of Canada; interest on reserves;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:clg:wpaper:2022-03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Department of Economics (email available below). General contact details of provider: https://edirc.repec.org/data/declgca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.