We are all Keynesians now?

Travis Fast

So the bank of Canada did it. They really did it. Now if the commercial banks drop their prime rate I will save ¼ point on the interest rate of my student loan. Now I can splurge on Christmas. Somehow I think my marginal spending behaviour changes in bigger utility chunks than a ¼ point. But then the cut was not really for me.

Who was it for?

Was it for the dollar and thus the domestic manufacturers and retailers?

What will such a general move do to help with the regional ands sectoral imbalances that have built up over time?

What was the evidence that the economy needed more stimuli on top of the massive tax cuts just announced by the Tories?

Was it the fear of a recession in the US?

If so, will monetary policy be the key lever in such a situation?

If it is the value of the dollar then will a ¼ point cut make a dimes worth of difference if the FED goes the same or ½ a point?

Has the Bank finally abandoned that ever so useful ideological Trojan Horse called the NAIRU?

Ok so we are all monetary Keynesians now; but are we all fiscal Keynesians?


Bank of Canada cuts key interest rate

By Bernard Simon in Toronto

Published: December 4 2007 17:24 | Last updated: December 4 2007 17:24

The Bank of Canada cut its key interest rate on Tuesday for the first time in more than three years on the grounds that faltering US growth now poses a bigger threat than inflation to the Canadian economy.

The bank lowered its overnight rate from 4.5 per cent to 4.25 per cent. It was set to raise rates as recently as last summer when labour shortages, capacity constraints and rising commodity prices threatened to unleash inflationary pressures.


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