Search

Central banks can implement unconventional monetary policy measures to provide additional easing when policy interest rates come close to their lower limit. To date, the international experience with tools such as quantitative easing and negative interest rates has been largely positive. Central banks may also use several such measures simultaneously, with often mutually reinforcing effects. Yet, unconventional tools are also subject to potential limits, and the costs associated with these measures could rise with extensive and prolonged use.

This paper studies the efficiency of financial intermediation through securitization in a model with heterogeneous investment projects and asymmetric information about the quality of securitized assets. I show that when retaining part of the risk, the issuer of securitized assets may credibly signal its quality.

Bordo and Redish examine the evolution of central banking over the past 70 years and identify periods where Canada was either a notable innovator with regard to central banking practices or appeared to be following a slightly different course. They note that global forces seemed to play an important role in determining inflation outcomes throughout the 70-year period, and that Canada and the United States experienced roughly similar inflation rates despite some important differences in their monetary policy regimes. Canada, for example, was comparatively late in establishing a central bank, launching the Bank of Canada long after most other industrial countries had one. Canada also operated under a flexible exchange rate through much of the Bretton Woods period, unlike any other country in the 1950s and early 1960s; adopted inflation targets well before most other central banks; and introduced a number of other innovative changes with regard to the implementation of monetary policy in the 1990s.

Technological innovations in the financial industry pose major problems for the measurement of monetary aggregates. The authors describe work on a new measure of money that has a more satisfactory means of identifying and removing the effects of financial innovations.

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

The paper examines three equity-based structural models to study the nonlinear relationship between equity and credit default swap (CDS) prices. These models differ in the specification of the default barrier.

Debt strategy is defined as the manner in which a government finances an excess of government expenditures over revenues and any maturing debt issued in previous periods. The author gives a thorough qualitative description of the complexities of debt strategy analysis and then demonstrates that it is, in fact, a problem in stochastic optimal control.

Funding structures affected the amount of financial stress different countries and sectors experienced during the spread of COVID-19 in early 2020. Policy responses targeting specific vulnerabilities were more effective at mitigating this stress than those supporting banks or the economy more broadly.

Our statistical needs are fundamentally shaped by what we are expected to do under our mandate. The primary goal of most central banks today is to conduct monetary policy so as to achieve and maintain price stability. Low, stable, and predictable inflation is the means to our ultimate objective of solid economic performance over time.

Deputy Governor Lawrence Schembri examines the success of the Bank’s monetary policy framework and explains the review being undertaken before its renewal in 2021.