This year, commodity prices, economic growth and the Canadian dollar have gone south while housing prices have continued to rise, pulling the Bank of Canada in opposite policy directions, says Canadian Business.
Monetary stimulus and attempts to control bubbles are often at cross-purposes. “It’s like taking a cocktail of antibiotics and probiotics mixed together,” says CB.
So with the Bank so focused on stabilizing the economy as oil price continue to plummet and volatility in the markets increases, we need another steady hand looking after asset bubbles, CB says.
Such a manager would oversee macroprudential policy. That includes measures like tightening mortgage-lending rules to ward off a housing market correction or untenable consumer debt levels.
At least 23 companies have some form of macroprudential oversight body. In Canada, we rely on the federal Cabinet ministers and their advisors at the department of Finance to make decisions as problems arise.
CB reports that the lack of clear direction on macroprudential policy is harming the Bank’s efforts to help the economy.
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