Canadian deputy warns limits to macro-prudential tools may impact monetary policy
Timothy Lane says fiscal policy may have to step into the breach in such a situation
In some instances relying on monetary policy to provide stimulus may "lead to financial vulnerabilities" that macro-prudential policy "cannot, or should not, offset", a Bank of Canada deputy governor warned on February 8.
In this situation, characterised by weak aggregate demand, fiscal policy "may be called upon" to provide stimulus instead, Timothy Lane said. "Particularly since it is likely to be more effective at low interest rates," he added.
Even with an "ideal set of institutional
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