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Many explanations for the decline in real interest rates over the last 30 years point to the role that population aging or rising income inequality plays in increasing the long-run aggregate demand for assets. Notwithstanding the importance of such factors, the starting point of this paper is to show that the major change driving household asset demand over this period is instead an increased desire—for a given age and income level—to hold assets.

The three articles in this issue provide an overview of the monetary policy decision-making process at the Bank of Canada, a discussion of Bank research on the assessment of vulnerabilities in the financial system and a description of recent fragmentation in Canadian equity markets.

We explore what drives transaction fees in the Bitcoin system and consider whether Bitcoin can remain tamper proof in the long run.

Staff projections provided for the Bank of Canada's monetary policy decision process take into account the integration of Canada's very open economy within the global economy, as well as its close real and financial linkages with the United States. To provide inputs for this projection, the Bank has developed several models, including MUSE, NEUQ (the New European Quarterly Model), and BoC-GEM (Bank of Canada Global Economy Model), to analyze and forecast economic developments in the rest of the world. The authors focus on MUSE, the model currently used to describe interaction among the principal U.S. economic variables, including gross domestic product, inflation, interest rates, and the exchange rate. Brief descriptions are also provided of NEUQ and BoC-GEM.

Using turnover ratios, Anderson and Lavoie describe the recent evolution of liquidity in various secondary government bond markets, focusing specifically on the market for Government of Canada securities. They attribute much of the recent variation in liquidity to such cyclical factors as changes in the interest rate environment and investors' appetite for risk, as well as developments in equity markets in the late 1990s. They also examine longer-term structural and policy-related trends, including the rate of adoption of financial and technological innovations and the level of government borrowing and debt-management initiatives.

In many industries, firms usually have two choices when expanding into new markets: They can either build a new plant (greenfield entry) or they can acquire an existing incumbent. In the U.S. cement industry, the comparative advantage (e.g., TFP or size) of entrants versus incumbents and regulatory entry barriers are important factors that determine the means of expansion.

We assess whether more central clearing would enhance the resilience of Canadian fixed-income markets. Our analysis estimates the potential benefits of balance sheet netting under scenarios where central clearing is expanded to new participants.

The author describes a model with a corrupt banking system, in which bankers knowingly lend at market interest rates to back projects riskier than the market rate indicates.

We present a new matrix-logarithm model of the realized covariance matrix of stock returns. The model uses latent factors which are functions of both lagged volatility and returns.