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The overnight market is an active forum where participants with a temporary surplus or shortage of funds can lend or borrow until the next business day. The level of interest rates in the overnight market has always been closely linked to the Bank of Canada's monetary policy operations. In this article, the authors describe the evolution of the market from its roots in the 1950s, the development of the Bank's monetary policy operations in the market, and how the market operates today. They also examine the outlook for the overnight market, particularly the implications of the new Large-Value Transfer System.

Since 1997 when the Bank of Canada last published a review of the Canadian overnight market, several important changes have affected the market's structure and dynamics. Reid provides a current overview of the market, examining the financial instruments, market transparency and flows, and the collateralized overnight rate as it has evolved since the introduction of the Large Value Transfer System and the fixed announcement dates. Other significant influences include changes in market practices regarding risk management, the rise of securities lending, the increased demand for collateral, and the Bank of Canada's measures to reinforce the target for the overnight rate.

The authors assess the potential impact of recently approved reforms to International Monetary Fund (IMF) surveillance; namely, the "2007 Decision on Bilateral Surveillance Over Members' Policies" and the "Statement of Surveillance Priorities" (SSP). They conclude that these complementary reforms have the potential to create a comprehensive and coherent framework for IMF surveillance. If implemented properly, […]

The effects of fiscal policy shocks on labour market outcomes across gender depend on the type of public expenditure. Women benefit most from increases in the government wage bill, while men are the main beneficiaries of higher investment spending.

This paper examines the welfare cost of rare housing disasters characterized by large drops in house prices. I construct an overlapping generations general equilibrium model with recursive preferences and housing disaster shocks.

Monetary theory says that money is essential if it helps to achieve better incentive-feasible outcomes. We test this in the laboratory.

Governor Mark Carney discusses globalization, financial stability and employment.

This paper studies the persistent effects of monetary shocks on output. Previous empirical literature documents this persistence, but standard general-equilibrium models with sticky prices fail to generate output responses beyond the duration of nominal contracts.

Canada's Large Value Transfer System (LVTS) is designed to meet international risk-proofing standards at a minimum cost to participants in terms of collateral requirements.

An important channel in the transmission of monetary policy is the relationship between the short-term policy rate and long-term interest rates. Using a new term-structure model, the authors show that the variation in long-term interest rates over time consists of two components: one representing investor expectations of future policy rates, and another reflecting a term-structure risk premium that compensates investors for holding a risky asset. The time variation in the term-structure risk premium is countercyclical and largely determined by global macroeconomic conditions. As a result, long-term rates are pushed up during recessions and down during times of expansion. This is an important phenomenon that central banks need to take into account when using short-term rates as a policy tool.