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Estimating Canada’s Effective Lower Bound

Jonathan Witmer and Jing Yang ()

Bank of Canada Review, 2016, vol. 2016, issue Spring, 3-14

Abstract: Recently, the Bank of Canada has estimated the effective lower bound (ELB) on its policy interest rate to be about -50 basis points. This article outlines the analysis that underpins that estimate by quantifying the costs of storing and using cash in Canada. It also explores how some international markets have adapted to negative interest rates, issues surrounding their implementation, as well as their transmission to other interest rates in the economy. Finally, it discusses theoretical ideas on how the ELB could be reduced further.

Date: 2016
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