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Bank liability guarantee schemes have traditionally been viewed as costless measures to shore up investor confidence and prevent bank runs. However, as the experiences of some European countries, most notably Ireland, have demonstrated, the credibility and effectiveness of these guarantees are crucially intertwined with the sovereign’s funding risks.

Using data from patents, citations, inter-sectoral sales and customs, we examine the international diffusion of technology through imports of sectoral knowledge and production inputs. We develop an instrumental variable strategy to identify the causal effects of technology embodied in imports on innovation and diffusion outcomes.

Following the recent financial crisis, major central banks have introduced several types of unconventional monetary policy measures, including liquidity and credit facilities, asset purchases and forward guidance. To date, these measures appear to have been successful. They restored market functioning, facilitated the transmission of monetary policy and supported economic activity. They have potential costs, however, including challenges related to the greatly expanded balance sheets of central banks and the eventual exit from these measures, as well as the vulnerabilities that can arise from prolonged monetary accommodation.

This paper studies short-term forecasting of Canadian real GDP and its expenditure components using combinations of nowcasts from different models. Starting with a medium-sized data set, we use a suite of common nowcasting tools for quarterly real GDP and its expenditure components.

Data on the use of government securities in the repo, securities lending and cash markets suggest there are bond market clienteles in Canada. Shorter-term bonds are more prevalent in the repo market, while longer-maturity securities are more active in the securities lending market—consistent with the preferred habitat hypothesis. These results could help design better debt-management strategies and more-effective policies to maintain well-functioning financial markets.

Unexpected changes in interest rates lead small firms to materially change their investment rate. Large firms, in contrast, show a smaller response. This suggests both that financial conditions are an important channel for transmitting monetary policy and that firm characteristics can help us better understand fluctuations in business investment.

Given the rapid and ongoing integration of the global economy, the International Monetary Fund needs to renew its role, governance structure, and functions if it is to maintain its relevance as the institution charged with promoting global financial stability. Lecavalier and Santor examine the areas of possible reform, including quota, voice, and representation; internal governance; surveillance; lending instruments; finances; and the Fund's role in low-income countries. They also review current Bank of Canada research that supports these reform efforts, including an integrated framework for IMF surveillance recently developed at the Bank.

This paper calculates an implied cost of equity for 19 developed countries from 1991 to 2006. During this period, there has been a decline in the cost of equity of about 10-15 bps per year, which can be partially attributed to declining government yields and declining inflation.

The authors describe the key features of a new large-scale Canadian macroeconomic forecasting model developed over the past two years at the Bank of Canada.

Many central banks around the world have embraced inflation targeting as a monetary policy framework. Interest is growing, however, in price-level targeting as an alternative. The choice of frameworks has important consequences for financial contracts, most of which are not fully indexed to the price level. Changes in the price level therefore lead to changes in the real value of contracts.