Monetary Policy Transmission in Canada – A High Frequency Identification Approach

Soosalu Matt ()
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Soosalu Matt: 6339 PhD Candidate, Carleton University , Ottawa, ON, Canada

The B.E. Journal of Macroeconomics, 2024, vol. 24, issue 2, 781-811

Abstract: I study the effects of monetary policy shocks in Canada on economic and financial variables. With a narrow window around a policy announcement, I create a new set of intraday level, high-frequency monetary policy surprises using the three-month Canadian Bankers’ acceptance rate futures. I use this measure to identify monetary policy shocks as an external instrument in a monthly VAR. Following a 25 basis point contractionary policy shock, I find that the decline in output is more powerful and peaks earlier than previous empirical works show, with a peak decline of 0.5 % points after 18 months. Price level declines are similarly more powerful and earlier, reaching a decline of 0.3 % points after 24 months. In addition, increases in the credit and mortgage spreads indicate the presence of a domestic credit channel of monetary policy transmission for Canada. Finally, I show that the surprise measure is robust to information effects.

Keywords: monetary policy surprises; structural VAR; small open economy; monetary policy transmission; high-frequency identification (search for similar items in EconPapers)
JEL-codes: E31 E43 E44 E52 E58 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/bejm-2023-0212

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