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Should managers be paid in stock options if they provide stock-market participants with information about the firm? This paper studies how firm owners trade off the benefit of stock-price incentives and better-informed market participants against the cost of potential stock-price manipulation.

Conditions in the international financial system have improved considerably since June in response to the forceful actions taken by policy-makers around the world.

FSR Highlights - December 2009

Suppose that the dynamics of the macroeconomy were given by (partly) random fluctuations between two equilibria: "good" and "bad."

We investigate the macroeconomic impacts of mothballed businesses—those that closed temporarily—on sectoral equilibrium prices after a negative demand shock. Our results suggest that pandemic fiscal support for temporary closures may have eased inflationary pressures.

We document the outcome of an options decimalization pilot on Canada’s derivatives exchange. Decimalization improves measures of liquidity and price efficiency. The impact differs by the moneyness of an option and is greatest for out-of-the-money options.

Cover page

French Provincial Issues in Canada

The coins pictured on the cover are part of the National Currency Collection, Bank of Canada.
Photography by Gord Carter, Ottawa.

Cover page

Irish Gun Money

The coins pictured on the cover are part of the National Currency Collection of the Bank of Canada.
Photography by Gord Carter

This issue features three articles that present research and analysis by Bank of Canada staff. The first updates previous Bank estimates of measurement bias in the Canadian consumer price index; the second uses a new term-structure model to analyze the relationship between the short-term policy rate and long-term interest rates; and the third examines indicators of balance-sheet risks at financial institutions in Canada.

We draw on the Canadian experience to examine how monetary and macroprudential policies interact and possibly complement each other in achieving their respective price and financial stability objectives.

How much of a CBDC would Canadian households want to hold, and what design features of a CBDC would they care about?