Search

The Bank of Canada has played an integral role in Canadian society for 70 years. When the Bank opened its doors in the spring of 1935, this country was struggling to define itself and to survive the economic and social turmoil of the Great Depression. Like Canada’s economy, its central bank has evolved and grown over the years. It has faced critical challenges and embraced change. But the Bank’s mandate has not changed. It is now, as it was then, to provide an effective, national monetary authority for Canada.

There have been a number of significant economic and financial developments since the time of the July Monetary Policy Report Update.

The global economy has been unfolding largely as expected, and prospects for continued robust growth are quite favourable, especially over the near term.

Six months ago, at the time of the last Monetary Policy Report, the global economic and financial environment was volatile and highly uncertain because of the adverse situation in Asia and the fallout from the Russian debt moratorium.

The global economy has continued to grow at a robust pace since the July Monetary Policy Report Update.

We introduce behavioral learning equilibria (BLE) into DSGE models with boundedly rational agents using simple but optimal first order autoregressive forecasting rules. The Smets-Wouters DSGE model with BLE is estimated and fits well with inflation survey expectations. As a policy application, we show that learning requires a lower degree of interest rate smoothing.

The Canadian economy continues to adjust to developments in the global economy.

Growth in the global economy began to slow in the fourth quarter of 2007 and the first quarter of 2008. This reflected the effects of the slowdown in the U.S. economy and ongoing dislocations in global financial markets.

The authors examine how the use of extreme value theory yields collateral requirements that are robust to extreme fluctuations in the market price of the asset used as collateral.

Since the May Report, the international economic environment has continued to improve. Economic activity abroad grew faster than expected, while inflation in the major economies remained subdued.