Economists use theoretical and statistical models to forecast the future and study different policy scenarios. A good model allows us to isolate the cause-and-effect relationships at play in a complex system. Our workhorse models, such as the Terms-of-Trade Economic Model, do a good job of assessing the impact of economic shocks.
11 But they can’t handle the behaviours and market disruptions that give rise to financial crises. So this is an area where we are pushing the frontiers. 7  H. Jackson, “The International Experience with Negative Policy Rates,” Staff Discussion Paper No. 2015–13, Bank of Canada, 2015.