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We study whether the credit derivatives of firms reflect the risk from climate transition. We find that climate transition risk has asymmetric and significant economic impacts on the credit risk of more vulnerable firms, and negligible effects on other firms.

This paper introduces and estimates a structural model of the Canadian primary market for government debt. We assess the role of dealer exit in this market as a key reason for increased, yet irregular, customer entry and quantify the benefits of greater customer competition against the costs of higher market volatility.

We document an increase in deviations from short-term covered interest rate parity (CIP) in the first half of 2015. Since the Swiss National Bank’s (SNB) decision to abandon its minimum exchange rate policy, both the magnitude and volatility of deviations from CIP have increased across several currency pairs. The effect is particularly pronounced for pairs involving the Swiss franc.

The three articles in this issue provide an overview of the monetary policy decision-making process at the Bank of Canada, a discussion of Bank research on the assessment of vulnerabilities in the financial system and a description of recent fragmentation in Canadian equity markets.

This paper proposes a novel asymptotic least-squares estimator of multi-country Gaussian dynamic term structure models that is easy to compute and asymptotically efficient, even when the number of countries is relatively large—a situation in which other recently proposed approaches lose their tractability.

We study the impact government expenditure has on inflation. We find that changes in government expenditure account for a substantial portion of inflation variations. We also find that inflation and inflation expectations respond negatively to fiscal spending shocks, reaffirming the supply-side channel through which inflation responds to fiscal expansions.

The authors examine whether monetary policy should and could do more to lean against financial imbalances (such as those associated with asset-price bubbles or unsustainable credit expansion) as they are building up, or whether its role should be limited to cleaning up the economic consequences as the imbalances unwind.

We examine different monetary policy governance structures and discuss the important roles of non-legislated processes and practices. We also provide an update on monetary policy governance at the Bank of Canada and how it has evolved over time.

This article provides an overview of the growth of Canadian-dollar-denominated assets in official foreign reserves. Based on International Monetary Fund data and on internal Bank of Canada analysis, we estimate that the total reserve holdings of Canadian-dollar assets increased from negligible levels before 2008 to around US$200 billion in the third quarter of 2013. We discuss the determinants of this increase, as well as its potential impact on Canadian debt markets, for example, lower yields and therefore reduced financing costs for the Government of Canada, and the possible negative impact on market liquidity.

While central banks cannot provide complete foresight with respect to their future policy actions, it is in the interests of both central banks and market participants that central banks be transparent about their reaction functions and how they may evolve in response to economic developments, shocks, and risks to their outlooks.