By Christopher Cotton and Neil Renwick

Christopher Cotton, Ph.D., is a Professor of Economics at Queen’s University where he holds the Jarislowsky-Deutsch Chair of Economic & Financial Policy and is the Director of the John Deutsch Institute for the Study of Economic Policy. Neil Renwick M.D., Ph.D, is a Clinician Scientist and Head of the Laboratory of Translational RNA Biology at Queen’s University and an Associate Attending Physician at The Rockefeller University Hospital in New York City. 

Last week, NY Governor Andrew Cuomo issued a plea to the rest of the country: “Help New York. We’re the ones hit right now… We need relief. We need relief for nurses working 12-hour shifts. We need relief for doctors. Help us now and we will return the favor.”

This request is based on the fact that states like New York, New Jersey, and Michigan are being hit hardest by the COVID-19 pandemic now, and are likely to see their apex in the next week or two, while other states are unlikely to reach their peak until later this spring. Today, as New York faces a shortage of health care workers, there are other places in the U.S. with excess medical capacity, where doctors and nurses not yet being pushed beyond their breaking point.

We claim such an argument not only applies to doctors and nurses but also applies to life-saving ventilators as well.Read More »

By Thorsten Koeppl

Thor Koeppl is a Professor of Economics and RBC Fellow at Queen’s University. He also serves as a Scholar and member of the National Council and Monetary Policy Council at the CD Howe Institute. 

Imagine you are driving your car on an alpine road.  You see some rocks starting to fall, a rockslide!  What do you do? Slam on the brakes.  Stop.  You take a deep breath and, after a sigh of relief that you kind of dodged it, you think: So, what’s next? How do I get past that rock slide?

This is where we are at in Canada in our response to the current CoVid-19 pandemic.  We brought the economy pretty much to a full stop.  It is fair to say that this reaction will likely save Canadians being fully engulfed in the rock slide.  We yet do not know how big the benefit will be in terms of lives saved or how large the costs will be on the economic side, but we did the right thing.  Act on the side of caution and hit the brakes.

Soon, hopefully, there comes the time to catch a breath and look forward to see how we can navigate the medium-run fall out from the pandemic.  And this is where economists and the way they tend to think can help us a lot.  After all, economists are “social engineers” that deal with problems where individual behaviour needs to be steered in the right direction to achieve better outcomes for society.Read More »

By Beverly Lapham, Queen’s University

The nominal exchange rate between Canada and the U.S. fluctuates considerably over time. These fluctuations affect Canadian retailers in at least two ways. Firstly, exchange rate movements affect retail price differences between the two countries (see [3]). In response to these price differences, consumers travel across the U.S.-Canada border to purchase goods in the country with lower prices. This is illustrated in the figure below which shows that nominal exchange rates are correlated with cross-border travel by Canadians. Hence, through travel responses, Canadian dollar appreciations tend to decrease demand, revenue, and profits for Canadian retailers. Secondly, because Canadian retailers often use imported inputs, movements in exchange rates may cause fluctuations in retailers’ costs. Thus, Canadian dollar appreciations tend to decrease costs and increase profits of Canadian retailers. My research with co-authors estimates the effect of exchange rate fluctuations on heterogeneous Canadian retailers’ revenues and profits and examines the impact of changes in border policies on those relationships.[1][2]

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By Gregor W. Smith, Queen’s University

The Bank of Canada often describes inflation targeting as flexible. For example, the preamble to its October 2018 Monetary Policy Report says:

“Canada’s inflation-targeting framework is flexible. Typically, the Bank seeks to return inflation to target over a horizon of six to eight quarters. However, the most appropriate horizon for returning inflation to target will vary depending on the nature and persistence of the shocks buffeting the economy.” [3]

The flexibility thus involves a deferral in the planned return of the inflation rate to 2%, the mid-point of the target range. This deferral is applied because policy is being used to respond to some other goal. One can read more about this strategy in speeches by Bank of Canada officials or in the background documents at the last two renewals of the inflation target [1,2].Read More »

By Raphaelle Gauvin-Coulombe, Queen’s University

Fiscal policy in response to the Great Recession of 2008-09 varied widely across OECD countries. The United States, for example, took an expansionary fiscal stance, adopting an important stimulus package in February 2009 on the order $787 billion (CBO estimate). Canada’s response went in the same direction with its Economic Action Plan, a $30 billion stimulus package enacted in January 2009 (Department of Finance, Canada). Alternatively, on the other side of the Atlantic, policy-makers in the United Kingdom, Germany, and elsewhere either proposed, or implemented, austerity measures. The effectiveness of these different responses is still debated among economists and policy-makers today, and the political drivers of such heterogeneity are still imperfectly understood. Read More »

By Ian Keay, Professor, Queen’s University

After tearing up a long-standing trade agreement between the United States and Canada, a deeply divided, Republican controlled Congress dramatically raises US tariff rates on products predominantly imported from Canada. The federal government in Canada is faced with an acute policy dilemma – there are strong domestic interests pushing for rapid and dramatic retaliation, while other groups, including farmers and landowners, are not nearly so enthusiastic about the prospect of a trade war with our largest and fastest growing trade partner. To complicate matters further, Canada’s European allies are keen to promote the continued globalization of international markets by keeping trade barriers low. The Canadian government ultimately decides to respond to these conflicting forces by re-writing virtually every line in the domestic tariff schedule, explicitly adopting protectionism as a primary policy goal, and increasing average tariffs by more than 50%.

This series of events probably sounds very familiar to Canadians today, but this particular episode in Canada-US trade relations took place over 150 years ago, during the late 1860s and 1870s. John A. Macdonald’s Conservative government introduced the National Policy tariffs as a response to US protectionism just months after his party won the 1878 federal election. Economists and historians have long understood that this response marked a sharp U-turn in Canada-US relations. However, our understanding of this policy, and its consequences for Canadian growth and development, has been hindered by researchers’ reliance on incomplete evidence.Read More »

By Nikola Milutinovic, Queen’s University

Carbon taxes aren’t necessarily the job killer some provincial party leaders are making them out to be. Research by Ph.D. Candidate Akio Yamazaki of the University of Calgary should give Canadian politicians and pundits pause over the employment effects of carbon taxes. Yamazaki’s research suggests that British Columbia’s revenue-neutral carbon tax caused a net-gain in employment of 4.5% between 2007 and 2013. Governments can affect the labour market impact of carbon pricing by properly allocating their carbon tax revenues, according to Yamazaki.

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