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The four essays published here provide a useful overview for anyone interested in understanding the issues and policy environment surrounding financial system stability.

Payments systems play a fundamental role in an economy by providing the mechanisms through which payments arising from transactions can be settled. The existing literature on the economics of payments systems is large but loosely organized, in that each model uses a distinct set-up and sometimes a distinct equilibrium concept.

his paper develops and estimates a model to explain the behaviour of house prices in the United States. The main finding is that over 70% of the increase in house prices relative to trend during the increase of house prices in the United States from 1995 to 2006 can be explained by a pricing mechanism where market participants are ‘Fooled by Search.’

We study the trading of an asset with bankruptcy risk. The traded price of the asset is, on average, 40% of the expected total dividend payments. We investigate which economic models can explain the low traded price.

Using a new data set, we examine the characteristics and dynamics of cross-border mergers and acquisitions during emerging-market financial crises, that is, so-called “fire-sale FDI.” Our findings shed fresh light on whether the transactions undertaken during crisis periods differ in fundamental ways from those undertaken during more tranquil periods.

Existing studies using low-frequency data show that macroeconomic shocks contribute little to international stock market covariation.

We construct a multi-country affine term structure model that contains unspanned macroeconomic and foreign exchange risks. The canonical version of the model is derived and is shown to be easy to estimate.

Recent years have witnessed the advances of e-money systems such as Bitcoin, PayPal and various forms of stored-value cards. This paper adopts a mechanism design approach to identify some essential features of different payment systems that implement and improve the constrained optimal resource allocation.

An international initiative to increase the use of central clearing for OTC derivatives emerged as one of the reactions to the 2008 financial crisis. The move to central clearing is a fundamental change in the structure of the market.

The authors provide a detailed technical description of the Terms-of-Trade Economic Model (ToTEM), which replaced the Quarterly Projection Model (QPM) in December 2005 as the Bank's principal projection and policy-analysis model for the Canadian economy.