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We show how participants in Canada’s new high-value payment system save liquidity by exploiting the new gridlock resolution arrangement. The findings have important implications for the design of these systems and shed light on financial institutions’ liquidity preference.

We introduce limited information in monetary policy. Agents receive signals from the central bank revealing new information (“news") about the future evolution of the policy rate before changes in the rate actually take place. However, the signal is disturbed by noise.

In recent years, significant efforts have been made to attract more women into academia and to support their careers, with the goal of increasing their representation.

This report highlights how an effective resolution regime promotes financial stability. It does this by ensuring that financial market infrastructures (FMIs) would be able to continue to provide their critical functions during a period of stress when an FMI’s own recovery measures were failing. The report explains the Bank of Canada’s new role as the resolution authority for FMIs, which will further bolster financial system resilience.

Cover page

Chinese Coin Charms

The charms on the cover are part of the National Currency Collection of the Bank of Canada.

Photography by Gord Carter.

Changes in technology and regulation have resulted in an increasing number of trading venues in equity markets in Canada. New trading platforms have intensified price competition and have encouraged innovation, and they do not appear to have segmented trade. But the increasingly complex market structure has necessitated investments in expensive technology and has introduced new operational risks. Regulatory responses should be carefully adapted to retain the competition and innovation associated with this market fragmentation.

Interest rate swaps and currency swaps are contracts in which counterparties agree to exchange cash flows according to a pre-arranged formula over a period of time. Since 1985, the federal government has been using such swaps to manage its liabilities in a cost-effective and flexible manner. The authors outline the characteristics of swap agreements and the ways in which the government uses them. They show that the swap program has been cost-effective, estimating that past and projected savings exceed $500 million. The authors also discuss the methods that the government uses to monitor the counterparty credit risk associated with these transactions.

The Canadian financial system remains resilient, but vulnerabilities have become more complex and risks have grown. The Bank is carefully watching households’ high levels of mortgage debt, as well as the risks associated with a price correction in Canada’s housing market.

The goal of Canadian monetary policy is to contribute to solid economic performance and rising living standards. The best way we can do this is by keeping inflation low, stable, and predictable. This has important implications for labour market performance.

During the 1990s the Bank of Canada made several changes that transformed its conduct of monetary policy. In the 1960s and 1970s, policy decisions were made in an environment characterized by instrument opaqueness and goal opaqueness, which tended to shield the Bank's operations from scrutiny and accountability. Since the 1970s the Bank has moved towards transparency and openness by rejecting multiple policy instruments and adopting a single, well-defined goal of inflation control. A recent survey has shown that the Bank of Canada is in the middle range of central banks with regard to its transparency and has lost points for not publishing the forecasts that shape its policy or the minutes and voting records of its governing body. Chant suggests that the public has benefited significantly from the changes the Bank has made, but that it should continue to support research on the benefits of low and stable inflation and continually inform other policy-makers and the public of the results.