The Fiscal Impact of Quantitative Easing

Abstract

The Bank of Canada's purchases of securities under quantitative easing result in an immediate cost to the federal government in the form of interest on the Bank of Canada's liabilities. It also creates a commitment to cover potential losses on assets held, exposing the Government of Canada to a higher interest rate risk than that indicated in the budget documents. This risk has translated into significant losses to date. Exiting quantitative easing in an inflation-fighting environment poses significant challenges for monetary policy and suggests that a difficult fiscal situation lies ahead.