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Currency crises in the 1990s, especially those in emerging markets, have sharply disrupted economic activity, affecting not only the country experiencing the crisis, but also those with trade, investment, and geographic links. The authors review the theoretical literature and empirical evidence regarding these crises. They conclude that their primary cause is a fixed nominal exchange rate combined with macroeconomic imbalances, such as current account or fiscal deficits, that the market perceives as unsustainable at the prevailing real exchange rate. They also conclude that currency crises can be prevented through the adoption of sound monetary and fiscal policies, effective regulation and supervision of the financial sector, and a more flexible nominal exchange rate.

We add downward nominal wage rigidity to a standard New Keynesian model with sticky prices and wages, where the zero lower bound on nominal interest rates is allowed to bind. We find that wage rigidity not only reduces the frequency of zero bound episodes but also mitigates the severity of corresponding recessions.

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.

Derivatives exchanges often determine collateral requirements, which are fundamental to market safety, with dated risk models assuming normal returns. However, derivatives returns are heavy-tailed, which leads to the systematic under-collection of collateral (margin). This paper uses extreme value theory (EVT) to evaluate the cost of this margin inadequacy to market participants in the event of default.

Economic growth in Canada is expected to average about 2 1/2 per cent in 2014 and 2015 before easing to around the 2 per cent growth rate of the economy’s potential in 2016.

Consumers, businesses and banks make millions of payments each day using a variety of instruments, such as debit cards, cheques and wires. Canada is currently developing three new systems to process these transactions: Lynx, Settlement Optimization Engine (SOE) and Real-Time Rail (RTR).

The premium on “on-the-run” Treasuries is an anomaly. I explain it using a model in which primary dealers hold inventories of Treasuries. I use the model to analyze the effects of granting access to central bank facilities.

ToTEM III is the most recent generation of the Bank of Canada’s main dynamic stochastic general equilibrium model for projection and policy analysis. The model helps Bank staff tell clear and coherent stories about the Canadian economy’s current state and future evolution.

The Bank of Canada recently launched a quarterly survey to measure the expectations of Canadian households: the Canadian Survey of Consumer Expectations (CSCE). The data collected provide comprehensive information about consumer expectations for and uncertainty about inflation, the labour market and household finance. This article describes the CSCE and illustrates its potential to offer rich information about Canadian consumers for researchers and policy-makers.