Grading the Bank of Canada’s Pandemic Response

Summary of the publication

School’s out for summer, and students across the country are getting their final grades for the year. So, it seems like as good a time as any to give the Bank of Canada some marks, too. The Bank of Canada performed well during the early stages of the pandemic, lowering overnight rates to the effective lower bound and introducing a myriad of programs aimed at restoring market functioning. Unfortunately, these programs were not scaled appropriately during the long middle of the pandemic and created market functioning issues. In addition, restrictive forward guidance limited the Bank of Canada’s ability to respond to underlying economic conditions, delaying the removal of accommodation that would have been consistent with mandated inflation. The Bank of Canada deserves a passing grade. The policies it put in place helped the economy avoid a much longer recession or even a depression. But there is always room for improvement. The Bank of Canada should perform an honest post-mortem on what went right and what went wrong.