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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).

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.

Although the current inflation-targeting regime has served Canadians well, sound public policy demands the continuous exploration of possible improvements in the monetary policy framework.

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.

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.

Using a nonlinear New Keynesian model with a financial accelerator, we show that financial frictions generate large state-dependent amplification effects. Shocks propagate more strongly in periods of financial stress. We propose an endogenous regime-switching DSGE framework for efficient estimation and improved model fit.

The author explores a fundamental trade-off that occurs between settlement delay and intraday liquidity in the daily operation of large-value payment systems (LVPS), with specific application to Canada's Large Value Transfer System (LVTS).

Our understanding of news shocks is, to a large extent, based on studies that focus empirically on short-run news. This paper brings new insights by analyzing the effects of giant commodity discoveries, which typically materialize over the longer run.

This paper quantifies tail risks in the outlooks for Canadian inflation and real GDP growth by estimating their conditional distributions at a daily frequency. We show that the tail risk probabilities derived from the conditional distributions accurately reflect realized outcomes during the sample period from 2002 to 2022.