Posts

• October 14, 2007

  The Effect of China on Global Prices

  Bank of Canada Review - Autumn 2007 Michael Francis

  The dramatic growth in China's exports of consumer goods such as clothing, toys, and electronics, and imports of primary commodities such as oil and metals is having major effects on global supply and demand. In examining China's role in global relative price changes, Francis finds that downward pressure on the relative prices of consumer goods is likely to persist as China's large labour supply continues its migration into manufacturing. Likewise, China's size and growth will also remain key drivers of global commodities demand for some time. Despite these forces, inflation-targeting central banks have the tools to keep inflation close to target, thus offsetting any persistent upward or downward inflationary pressure.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation and prices, International topics, Recent economic and financial developments
• October 13, 2007

  Estimating the Cost of Equity for Canadian and U.S. Firms

  Bank of Canada Review - Autumn 2007 Lorie Zorn

  Financing costs are important for both firms and the economy, affecting investment decisions and, ultimately, economic growth. Despite concern among policy-makers that the cost of equity financing may be higher in Canada than in the United States, empirical evidence supporting this view is mixed. Yet Canadian firms may not undertake as many projects that could potentially enhance growth if the cost of equity financing in Canada is relatively high. The article summarizes research by Jonathan Witmer and Lorie Zorn on the influences on the cost of equity in Canada and the United States, using an updated methodology that controls for firm characteristics and aggregate-level factors. In their sample, the cost of equity was 30–50 basis points higher in Canada over 1988 to 2006 but appears to have dropped in the post-1997 period. The results have policy implications related to such factors as firm size, disclosure, and securities regulation and enforcement.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial markets, International topics
• October 12, 2007

  Bank of Canada Workshop on Derivatives Markets in Canada and Beyond

  Bank of Canada Review - Autumn 2007 Toni Gravelle

  At this 2006 workshop hosted by the Bank of Canada, an international group of market participants, regulators, and policy-makers gathered to assess recent developments in the derivatives market. Among the topics discussed were the recent prodigious growth in risk-transfer instruments, including credit derivatives and inflation-linked derivatives, as well as the accompanying challenges and benefits. Overall, the development of derivatives markets was seen as providing broad economic benefits, including more complete financial markets, improved market liquidity, and increased capacity of the financial system to effectively price and bear risk. Yet concern was also voiced that market participants do not fully understand the risks that arise in trading credit derivatives.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial markets, Financial stability, Financial system regulation and policies
• October 11, 2007

  Deputy Governor Tiff Macklem appointed Associate Deputy Minister of Finance

  Media Relations Ottawa, Ontario

  The Prime Minister announced today that Tiff Macklem, Deputy Governor of the Bank of Canada, has been appointed Associate Deputy Minister of Finance, effective 1 November.

  Content Type(s): Press, Press releases
• October 10, 2007

  The Canadian Journey: An Odyssey into the Complex World of Bank Note Production

  Bank of Canada Review - Autumn 2007 Jill Moxley, Helen Meubus, Maura Brown

  For many years, the Bank of Canada successfully responded to occasional eruptions in counterfeiting by improving the security features on bank notes. The surge in counterfeiting that occurred while the Bank prepared to launch the Canadian Journey series, however, reflected increasingly rapid advances in computer technology that were changing the counterfeiting environment. The article describes these and other challenges that affected the new series and describes how the Bank developed a comprehensive new approach to its currency program and incorporated the valuable lessons it learned from these challenges. Designed to combat counterfeiting and meet the needs of the public, the new strategy includes increased research and development on new bank note security features, an intensified focus on retailer and public education, and a focus on law enforcement.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Bank notes, Central bank research
• October 5, 2007

  Business Outlook Survey - Autumn 2007

  Overall, businesses continue to be positive about the economic outlook, notwithstanding lower expectations for U.S. economic growth and recent financial market turbulence.

  Content Type(s): Publications, Business Outlook Survey
• October 4, 2007

  Mark Carney Appointed Governor of the Bank of Canada

  Media Relations Ottawa, Ontario

  The Directors of the Bank of Canada appointed under Section 9 of the Bank of Canada Act today announced that they have appointed Mark Carney as Governor of the Bank of Canada for a seven-year term, effective 1 February 2008.

  Content Type(s): Press, Press releases

• Rediscounting Under Aggregate Risk with Moral Hazard

  Staff Working Paper 2007-51 James Chapman, Antoine Martin

  Freeman (1999) proposes a model in which discount window lending and open market operations have different effects. This is important because in most of the literature, these policies are indistinguishable.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Financial markets, Payment clearing and settlement systems JEL Code(s): E, E5, E58, G, G2, G20
• October 3, 2007

  Liquidity, Liquidity, Liquidity

  Remarks David Longworth Investment Industry Association of Canada Toronto, Ontario

  Sound financial investment is important to individuals, to firms, and to society as a whole. By definition, investment is forward looking, and thus our future financial well-being is shaped by the soundness of the investment decisions we make today.

  Content Type(s): Press, Speeches and appearances, Remarks

• Do Firms Adjust Toward a Target Leverage Level?

  Staff Working Paper 2007-50 Zhaoxia Xu

  This paper studies capital structure adjustment mechanisms of firms that experience substantial changes in leverage.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, International topics JEL Code(s): G, G3, G32