As the country’s central bank, our responsibilities are spelled out in the Bank of Canada Act. Its preamble says that our job is to “promote the economic and financial welfare of Canada”—a lofty assignment. Few mention the phrase that comes right before that: “so far as may be possible within the scope of monetary action.” Even in 1935, the drafters of our legislation recognized that monetary policy cannot do everything. There are limits to its power. I will talk about three of these limitations today. Our understanding of these limits has evolved with experience. Forty years ago, it was widely believed that monetary ... (full story)