The Fiscal Impact of Quantitative Easing.

The Bank of Canada's purchases of securities under quantitative easing are tantamount to an exchange of a fixed interest rate expense for a floating rate paid on certain liabilities of the Bank of Canada. They also imply that the Government of Canada remains liable for potential losses on these assets. This significantly increases the proportion of federal government debt financed in the money market, exposing the Government of Canada to higher interest rate risk than indicated in the budget documents and has resulted in significant losses to date. The exit from quantitative easing in an anti-inflationary environment poses significant challenges for monetary policy and points to a difficult fiscal situation. [ABSTRACT FROM AUTHOR]