Over time, the increased borrowing could potentially lead to imbalances, in the housing market for example. In this case, you could have macroprudential policy tightening that’s working in the opposite direction of monetary policy. It’s therefore crucial to deepen our understanding of how the various transmission channels for monetary policy can be affected by variables that could be targets for financial system policies.
These types of questions are urgent research priorities for the Bank of Canada as we work toward renewing our inflation- targeting agreement with the federal government next year. Indeed, assessing the costs and benefits of possible monetary policy interventions to address financial stability concerns continues to be a priority in the lead-up to the renewal.