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The underground economy in Canada has attracted increased attention over the past few years, yet there is no precise way to measure its size. Recent estimates vary between 4 per cent and 15 per cent of gross domestic product. This article provides an overview of measurement issues and recent estimates. It then focusses on the "monetary" approach to estimating the size of the underground economy. This approach is based on the assumption that the demand for bank notes provides a clue as to the size of the underground economy. The article concludes that estimates that use this approach must be viewed with considerable caution. They are based on a number of assumptions that are difficult to verify and that significantly affect the results.

Weak identification is likely to be prevalent in multi-equation macroeconomic models such as in dynamic stochastic general equilibrium setups. Identification difficulties cause the breakdown of standard asymptotic procedures, making inference unreliable.

This section of the Financial System Review examines the recent performance of the Canadian financial system and the factors, both domestic and international, that are influencing it.

We investigate the relationship between immigrant status and mortgage delinquency in the United States.

In the Canadian large value payment system an important goal is to understand how liquidity is transferred through the system and hence how efficient the system is in settling payments. Understanding the structure of the underlying network of relationships between participants in the payment system is a crucial step in achieving the goal.

This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.

The authors examine the recent evolution of commodity prices. They discuss the factors behind the price declines that occurred between the summer of 1997 and the end of 1998, including the key supply factors and the drop in Asian demand caused by that region's concurrent financial and economic crisis. They then review the effects of the reduction in world commodity prices on economic activity in Canada. They point out that the depreciation of the Canadian dollar against the U.S. dollar, together with the continued strength of the U.S. economy, has partly offset the negative effects on Canadian aggregate demand.

The fourth generation of Bank of Canada projection and policy analysis models seeks to improve our understanding of inflation dynamics, the supply side of the economy and the underlying risks faced by policy-makers coming from uncertainty about how the economy functions.

This paper introduces a new methodology to date systemic financial stress events in a transparent, objective and reproducible way. The financial cycle is captured by a monthly country-specific financial stress index.

Stock market fundamentals would not seem to meaningfully predict returns over a shorter-term horizon—instead, I shift focus to severe downside risk (i.e., crashes).