Tag Archives: central banking

Remarks by Mr Stephen S Poloz, Governor of the Bank of Canada, to the CFA Montreal and Montreal Council on Foreign Relations, Montreal, Quebec, 7 November 2017. Bank of International SettlementsStephen S Poloz: Understanding inflation - getting back to basics

No, inflation is not getting harder to "understand." Central banks are just using models that don't fit the case, for example, confusing special case model with general models, or using models that are mis-specified.  The message is to review the assumptions, including methodological ones, and revise them as appropriate. Then compare the model with the real world. What's so difficult to understand about that? This is what scientists do. Difficult, you say? That's what you are...

Interest rates are the price of credit. They are the price of access to capital. Now, it is obvious that pricing credit is not tyrannical in and of itself. Interest compensates a lender for default risk and the risk of inflation eroding the purchasing power of the money that they lend. The tyranny I am getting at is subtle. It is the tyranny that Keynes pointed to when he proposed a euthanasia of the rentier. Keynes proposed that low interest rates would: mean the euthanasia of the rentier,...