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Many emerging-market economies (EMEs) have significantly improved their macroeconomic fundamentals and undergone structural reforms since the Asian crisis. These developments have enhanced the composition of capital flows to EMEs through an improved debt structure, a larger share of capital flows as foreign direct investment, and greater access to international debt markets for corporations in EMEs. Structural changes in the global financial landscape have also increased capital flows, bringing economic and financial benefits to EMEs. During the recent financial crisis, however, the opening up of capital accounts and increased financial and trade linkages left many countries vulnerable to external disruptions. Countries with sound fundamentals have weathered the crisis relatively well. Policy-makers in EMEs need to implement policies that support capital flows and ensure that controls imposed to deal with detrimental outflows during periods of stress or rapid inflows are only temporary.

This paper investigates the implications of endogenous trade participation for international business cycles, trade flow dynamics and exchange rate pass-through when price adjustments are staggered across firms.

Recent years have seen renewed interest in the regulation of interbank markets. A review of the literature in this area identifies two gaps: first, the literature has tended to make ad hoc assumptions about the interbank contract space, which makes it difficult to generate convincing policy prescriptions; second, the literature has tended to focus on ex-post interventions that kick in only after an interbank disruption has come underway (e.g., open-market operations, lender-of-last-resort interventions, bail-outs), rather than ex-ante prudential policies.

Severe disruptions in the financial markets, as observed during the 2008 global financial crisis or the COVID-19 pandemic, can impair the stability of the entire financial system and worsen macroeconomic downturns.

Using data on Canadian bond futures, we examine how high-frequency traders (HFTs) interact with institutions building large positions. In contrast to recent findings, we find HFTs in the data act as small-sized liquidity suppliers, and we reject the hypothesis that they engage in back running, a predatory trading strategy.

We propose a macroeconomic model in which adverse selection in investment drives the amplification of macroeconomic fluctuations, in line with prominent roles played by the credit crunch and collapse of the asset-backed security market in the financial crisis.

We study the importance of supply constraints in explaining the heterogeneity in house price cycles across geographies in the United States.

In a speech to the Vancouver Board of Trade, Governor Mark Carney discusses the fundamentals of the Canadian residential real estate market, the international context, and the implications for monetary policy.

This paper considers an economy where central-bank-issued fiat money competes with privately issued e-money. We study a policy-setting game between the central bank and the e-money issuer and find (1) the optimal monetary policy of the central bank depends on the policy of the private issuer and may deviate from the Friedman rule; (2) multiple equilibria may exist; (3) when the economy approaches a cashless state, the central bank’s optimal policy improves the market power of the e-money issuer and can lead to a discrete decrease in welfare and a discrete increase in inflation; and (4) first best cannot be achieved.

Bank of Canada staff are running a “horse race” of alternative monetary policy frameworks in the lead-up to 2021 renewal of the Bank’s monetary policy framework. This paper summarizes some interim results of model simulations from their research.