Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Christopher Ragan is associate professor of economics  at McGill University in Montreal and a research fellow at the C.D. Howe Institute in Toronto.

Last week, while addressing questions about Canada's fragile economy, federal Finance Minister Joe Oliver was asked whether the Bank of Canada should consider using "quantitative easing" to stimulate Canada's economy. He responded immediately, saying it's "not on the table." But whatever the case for the use of this approach to monetary policy, Mr. Oliver should know better than to speak about something clearly outside his purview.

For those who don't know, quantitative easing is an approach for providing monetary stimulus that many central banks have used in recent years, including the U.S. Federal Reserve, the Bank of England, the Bank of Japan and the European Central Bank. With quantitative easing, the central bank "prints" money – in either its physical or electronic form – then uses this money to purchase government bonds on the open market. The new money, once circulating in the economy, appears as a liability on the central bank's balance sheet, whereas the new bonds are an equivalent amount of interest-earning assets. Central banks do this when they can no longer use their "conventional" approach of reducing short-term interest rates because they've already reached their effective lower bound.

Story continues below advertisement

Despite the language, quantitative easing isn't really "unconventional." Since they were first created, central banks have been in the business of printing money and using it to purchase government bonds. That's exactly what happens behind the scenes when central banks reduce their policy interest rate in an attempt to spur economic growth; the opposite happens when they raise interest rates in an attempt to slow down an overheating economy. Central banks choose the scale of these balance-sheet changes depending on their assessment of the economic situation.

Back in 2009, the Bank of Canada chose not to engage in quantitative easing. Its assessment at the time was that Canadian banks and financial markets were not impaired as much as those in the United States and Britain. Conventional interest rate reductions, combined with the fiscal stimulus by the federal government, were seen as sufficient policy actions to deal with Canada's recession. In retrospect, it's hard to argue that the Bank of Canada acted inappropriately.

But that was then and this is now. Should the Bank of Canada reconsider the use of quantitative easing, as the economy is now likely in the midst of another recession and growth for this year is forecast to be anemic?

We can and should have this debate, and it's very likely that the discussion is currently happening inside the bank.

Some economists will argue that since the bank's target for the overnight interest rate is already at 0.5 per cent, and the economy is looking very weak, it's appropriate that quantitative easing be the next step. This view is strengthened by the federal government's insistence that it will provide no fiscal stimulus and instead stick to its promise of achieving a budget surplus by the end of the current fiscal year.

Other economists will argue that the bank can no longer provide much stimulus to the Canadian economy because the real problems are lack of investment caused by corporate pessimism and depressed exports to a weakening global economy. More liquidity, lower interest rates and a weaker Canadian dollar just won't help very much – but they will likely worsen our existing problems of rising personal debt and rising house prices.

Mr. Oliver can play his best role in this complex debate by staying out of it altogether.

Story continues below advertisement

The federal government is the sole shareholder of the Bank of Canada, whose governor is accountable to the finance minister and, through him or her, to Parliament.

But the Bank of Canada is also "operationally independent" from the federal government, and this independence is crucial to the bank's long-term success in maintaining low and stable inflation.

Over many years and across many countries, evidence clearly shows that when elected governments get too involved in the operational details of monetary policy, inflation rises and becomes more volatile.

Mr. Oliver should be talking a lot about the current weakness of the Canadian economy, and also about what he is prepared to do – with fiscal policy – to make the situation better for Canadians. But when he faces questions about monetary policy, he should defer to the bank's governor. To do anything else is to undermine the bank's ability to make monetary policy in the best interests of the country.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies