Unconventional Monetary Policy: The Perspective of a Small Open Economy?
Jean-Sebastien Fontaine (),
Lena Suchanek and
Jing Yang ()
Bank of Canada Review, 2017, vol. 2017, issue Spring, 19-30
How do unconventional monetary policies like quantitative easing and negative interest rates affect domestic financial conditions and the broader economy in small open econo-mies, such as Canada? These policies are effective in depreciating the exchange rate in small open economies, while lower interest rates are also passed through to the economy, albeit only partially. When conventional monetary policy is close to its limits, fiscal policy may be a more important complement to monetary policy in a small economy, particularly if global demand for safe assets compresses long-term interest rates.
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