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Existing literature documents that house prices respond to monetary policy surprises with a significant delay, taking years to reach their peak response. We present new evidence of a much faster response.

This paper explores how the Canadian futures market contributed to banks’ systemic risk during the 2008 financial crisis. It finds that core banks as a whole traded against the periphery, in this way increasing their risk of simultaneous losses.

This note presents our estimates of potential output growth for the global economy through 2020. Overall, we expect global potential output growth to remain broadly stable over the projection horizon, averaging 3.3 per cent, although there is considerable uncertainty surrounding these estimates.

Economic growth in Canada is forecast to improve in the second half of 2024 and strengthen further in 2025 and 2026. Core inflation is expected to ease gradually, while the path of CPI inflation will be bumpy.

This issue of the Financial System Review reflects the Bank’s judgment that high household indebtedness and housing market imbalances remain the most important vulnerabilities. While these vulnerabilities remain elevated, policy measures continue to improve the resilience of the financial system. A third vulnerability highlighted in the FSR concerns cyber threats to an interconnected financial system.

The Risk Amplification Macro Model (RAMM) is a new nonlinear two-country dynamic model that captures rare but severe adverse shocks. The RAMM can be used to assess the financial stability implications of both domestic and foreign-originated risk scenarios.

In addition to its primary role as the country's central bank, the Bank of Canada also acts as the federal government's banker and financial adviser. One of the activities associated with this role as fiscal agent is managing the government's Canadian dollar balances. This function is examined in this article. The main priority is to ensure that the government has sufficient cash to meet its daily needs. This requires careful forecasting and monitoring of the government's daily receipt and expenditure flows, as well as an ongoing borrowing program to refinance maturing debt and to replenish the balances during periods when outflows, on average, exceed inflows. The cost of borrowing to raise cash balances for the government is considerably higher than the interest earned on any balances that are available "on demand." To reduce this net cost, balances in excess of those required for daily needs are invested in "term" deposits that earn a higher rate of interest than that earned on the demand balances. The net cost of holding government balances has also been reduced through the use of cash management bills, which are flexible, short-term borrowing instruments that complement the government's regular weekly issues of 3-, 6- and 12-month treasury bills.

The author traces developments in the Canadian covered bond market. Covered bonds could be a valuable way to provide a stable and diverse source of funding, particularly for smaller banks. However, higher issuance could increase banks’ vulnerability to liquidity stress, with implications for the broader financial system. The author argues that these benefits and challenges can be balanced in a well-designed policy framework.