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Bank of Canada Governor Tiff Macklem talks about the Bank’s latest interest rate announcement and what’s driving inflation in Canada. He also discusses how the Bank will manage the next step in the Bank’s balance sheet operations – quantitative tightening.

While monetary stability through low inflation is crucial to good economic performance, our economy cannot function properly unless it is also supported by an efficient and stable financial system. And as the world economy becomes increasingly interconnected, sound macroeconomic policies and sound financial systems across all countries are even more essential.

The year 2006 marked a turning point for the Bank of Canada. We successfully completed our medium-term plan, The Way Forward, and began writing a fresh chapter in the Bank’s history based on a new three-year plan. In this annual report, we do more than give an accounting of past achievements. We also provide forward-looking information on the plans and priorities in our new medium-term plan. And as we advance, we are always mindful of the Bank’s original mandate, set out more than 70 years ago, to “promote the economic and financial welfare of Canada.”

Senior Deputy Governor Carolyn A. Wilkins discusses how automation could affect productivity and the Bank’s monetary policy.

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.

We propose a new empirical framework that jointly decomposes the conditional variance of economic time series into a common and a sector-specific uncertainty component. We apply our framework to a disaggregated industrial production series for the US economy. We identify unexpected changes in durable goods uncertainty as drivers of downturns, while unexpected hikes in non-durable goods uncertainty are expansionary.

Similar to those of other forecasters, the Bank of Canada’s forecasts of global GDP growth have shown persistent negative errors over the past five years. This is in contrast to the pre-crisis period, when errors were consistently positive as global GDP surprised to the upside. All major regions have contributed to the forecast errors observed since 2011, although the United States has been the most persistent source of notable errors.

The Canadian economy entered 2022 in a strong position. The Bank is forecasting growth of 4% in 2022 and about 3½ % in 2023.

International financial institutions, such as the International Monetary Fund, the World Bank and the Bank for International Settlements, are important players in the global financial system. This article provides an overview of the major international financial institutions to which Canada belongs. The paper highlights their activities and the nature of Canada's involvement, including that of the Bank of Canada. Recent initiatives coming out of the Halifax and Lyon Summits to improve the effectiveness of international financial institutions are also noted.