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This report provides a detailed technical description of the updated MacroFinancial Risk Assessment Framework (MFRAF), which replaces the version described in Gauthier, Souissi and Liu (2014) as the Bank of Canada’s stress-testing model for banks with a focus on domestic systemically important banks (D-SIBs).

This paper provides a framework to compare linked and unlinked CCP configurations in terms of total netting achieved by market participants and the total system default exposures that exist between participants and CCPs.

This note provides an update on Bank of Canada staff’s assessment of the Canadian neutral rate. The neutral rate is the policy rate needed to keep output at its potential level and inflation at target once the effects of any cyclical shocks have dissipated. This medium- to long-run concept serves as a benchmark for gauging the degree of monetary stimulus provided by a given policy setting.

Freedman and Engert focus on the changing pattern of lending and borrowing in Canada in the past thirty to forty years, including the types of financial instruments used and the relative roles of financial institutions and financial markets. They examine how borrowing mechanisms have changed over time and consider the challenges facing the Canadian financial sector, including whether our financial markets are in danger of disappearing because of the size and pre-eminence of U.S. financial markets. Some of the trends examined here include syndicated lending, securitization, and credit derivatives, a form of financial engineering that has become increasingly important in the last few years. They also study bond and equity markets to determine whether Canadian capital markets have been hollowed out or abandoned by Canadian firms and conclude that the data do not provide much support for that view.

When it comes to understanding the influence of labour costs on inflation, average wage growth is a misleading indicator because it is affected by composition effects. We propose an alternative measure that corrects for these effects by using microdata from the Labour Force Survey. Our new measure has many desirable properties, including reduced volatility and a better relationship with labour market fundamentals.

The Department of Finance and the Bank of Canada, as its fiscal agent, work closely with financial market participants in the management of the federal government's debt program. From the government's perspective, maintaining a liquid well-functioning market in Government of Canada securities is a key factor in ensuring that debt-service costs are minimized. It is […]

Financing costs are important for both firms and the economy, affecting investment decisions and, ultimately, economic growth. Despite concern among policy-makers that the cost of equity financing may be higher in Canada than in the United States, empirical evidence supporting this view is mixed. Yet Canadian firms may not undertake as many projects that could potentially enhance growth if the cost of equity financing in Canada is relatively high. The article summarizes research by Jonathan Witmer and Lorie Zorn on the influences on the cost of equity in Canada and the United States, using an updated methodology that controls for firm characteristics and aggregate-level factors. In their sample, the cost of equity was 30–50 basis points higher in Canada over 1988 to 2006 but appears to have dropped in the post-1997 period. The results have policy implications related to such factors as firm size, disclosure, and securities regulation and enforcement.

For stationary transformations of variables, there exists a maximum horizon beyond which forecasts can provide no more information about the variable than is present in the unconditional mean. Meteorological forecasts, typically excepting only experimental or exploratory situations, are not reported beyond this horizon; by contrast, little generally accepted information about such maximum horizons is available for economic variables.

This paper shows that survey expectations can be used to uncover how households subjectively think about inflation and unemployment dynamics jointly. The commonly documented "stagflation view", namely the households' tendency to associate inflation with a worse labor market, implies amplified impacts of supply shocks and dampened ones of demand shocks.

Could Canadian banks continue to meet their regulatory liquidity requirements after the introduction of a cash-like retail central bank digital currency (CBDC)? We conduct a hypothetical exercise to estimate how a CBDC could affect bank liquidity by increasing the run-off rates of transactional retail deposits under four increasingly severe scenarios.