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The Canadian economy continues to grow at a solid pace, consistent with the Bank’s outlook in the January Monetary Policy Report Update.

This is the second in a series of semi-annual reports designed to increase the transparency and understanding of Canadian monetary policy.

In the last half-year, the economic expansion in Canada has become well established, supported by low inflation, highly stimulative monetary conditions, and a strong U.S. economy.

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 year that just passed posed many challenges for all Canadians. The slowdown in the global economy became more pronounced as the year went on, and this affected households, businesses, and governments alike. The tragedy of 11 September compounded the economic difficulties and issues facing us all. Through this period of rapidly changing circumstances, the Bank met its responsibilities by responding quickly and vigorously to events in order to underpin confidence and support the economy.

At the time of last November’s Monetary Policy Report, two issues dominated the analysis: the global economic slowdown and the fallout from the September terrorist attacks.

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

Should managers be paid in stock options if they provide stock-market participants with information about the firm? This paper studies how firm owners trade off the benefit of stock-price incentives and better-informed market participants against the cost of potential stock-price manipulation.

This Report presents the Bank of Canada’s assessment of the trend of inflation in Canada and explains the monetary policy actions deemed necessary to keep inflation within the Bank’s inflation-control target range.

Proportional reduction is a common cartel practice in which cartel members reduce their output proportionately. We develop a method to quantify this reduction relative to a benchmark market equilibrium scenario and relate the reduction to the traditional conduct parameter.