IM_Ambler and Kronick_2022_0609.pub

A common measure of the stance of monetary policy is the real policy interest rate: the policy rate minus a measure of inflation expectations. [...] The 125-basis point tightening of the overnight rate has led to an 80-basis point real tightening if we look at “CPI-common,” a 50-basis point real tightening looking at “CPI-trim,” and a 40-basis point real tightening looking at “CPI-median.” On the other hand, without exception, the real rates of interest using these core measures of inflation continue to be substantially negative, even if they. [...] Another way to measure the current stance of monetary policy is to compare the overnight rate to the so-called neutral rate, the rate at which we have both full employment and inflation equal to target in a sustainable way. [...] The Bank now estimates that the nominal neutral rate lies in a range of 2 to 3 percent – compared to the current policy rate of 1.5 percent. [...] Steve Ambler, a professor of economics at the Université du Québec à Montréal, is the David Dodge Chair in Monetary Policy at the C.