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The Canadian economy regained strong momentum in 1999 as the U.S. economy remained vigorous, the global economy recovered, and commodity prices moved upwards.

This issue of the Financial System Review reflects the Bank’s judgment that the high level of household indebtedness and housing market imbalances remain the most important vulnerabilities. While these vulnerabilities are still elevated, improving economic conditions and recent changes to housing policy should support an easing of these vulnerabilities over time. A third vulnerability highlighted in the FSR concerns cyber threats and the interconnectedness of the financial system.

DeFi lending with proper governance is operationally viable, but it also faces constraints related to capital efficiency, liquidation risk, and systemic fragility within the crypto ecosystem.

We construct and estimate a structural two-stage model of equilibrium in a market for payments in order to quantify the network externalities and identify the main determinants of consumer and merchant decisions.

A model of over-the-counter markets is proposed. Some asset buyers are informed in that they can identify high quality assets. Heterogeneous sellers with private information choose what type of buyers they want to trade with.

Beginning with a review of the adoption of inflation targeting in a broad group of countries, Paulin focuses on changes in the design of inflation-targeting frameworks in light of fifteen years of accumulated experience. Included in the discussion are the use of numerical targets and ranges, the policy horizon, supporting institutional policy structures, and communication, including the publication of forecasts. A recurring theme is how much flexibility an inflation-targeting regime allows. The article concludes that the changes made to the frameworks have been relatively modest since their adoption, but in concert with the improved credibility that has resulted from central banks meeting their inflation-control targets, they have allowed an increasingly nuanced response to economic shocks.

Repeated interactions between borrowers and lenders create the possibility of dynamic pricing: lenders compete aggressively with low prices to attract new borrowers and then raise their prices once borrowers have made a commitment. We find such pricing patterns in the Canadian mortgage market.

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Silver Presentation Salver

The salver, which was bequeathed to the Bank of Canada by Lady Macmillan in 1967, is part of the artifact collection of the Bank of Canada Archives.
Photography by Mone Cheng, Innovacom, Ottawa.

Portfolio-balance models of the yield curve are notoriously hard to estimate. This paper offers a simple, two-step estimation approach that can be implemented with standard term structure estimation methods. In our application to U.S. Treasury data, our method recovers economically interpretable drivers of the yield curve.

Economic activities typically involve coordination among a large number of agents. These agents have to anticipate what other agents think before making their own decisions.