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Over the past 5 years, real energy and non-energy commodity prices have trended sharply higher. These relative price movements have had important implications for inflation and economic activity in both Canada and the rest of the world. China has accounted for the bulk of incremental demand for oil and many base metals over this period.

The impact of COVID-19 on Canadian households’ debt and unplanned savings varies by household income. Low-income and high-income households accrued unplanned savings, while middle-income households tended to accumulate more debt.

This article reviews selected papers that use machine learning for economics research and policy analysis. Our review highlights when machine learning is used in economics, the commonly preferred models and how those models are used.

We present a simple model to study the risk sensitivity of capital regulation. A banker funds investment with uninsured deposits and costly capital, where capital resolves a moral hazard problem in the banker’s choice of risk.

Specifications of the Federal Reserve target rate that have more realistic features mitigate in-sample over-fitting and are favored in the data.

Liquidity demands in real-time gross settlement payment systems can be enormous. To reduce the liquidity requirement, central banks around the world have implemented liquidity savings mechanisms (LSMs).

This paper shows that if the Bank of Canada is optimally adjusting its monetary policy instrument in response to inflation indicators to target 2 per cent inflation at a two-year horizon, then deviations of inflation from 2 per cent represent the Bank's forecast errors, and should be uncorrelated with its information set, which includes two-year lagged values of the instrument and the indicators. Positive or negative correlations are evidence of systematic errors in monetary policy.

This article examines the developments in the monetary aggregates over the course of 1997 and their implications for future economic activity. The narrow aggregate, M1, grew rapidly in the first half of 1997 but slowed somewhat during the second half of the year. Much of the strong growth in this aggregate over the last several years has been associated with a higher demand for transactions balances as interest rates declined and economic activity revived. There were some special factors at play, however, that are discussed in the article. The Bank expects some slowing in M1 growth through 1998 and into 1999. This would be consistent with a trend of inflation within the inflation-control target range of 1 to 3 per cent over the next couple of years. Growth in the broad aggregate, M2+, continued to be distorted by the shift of savings out of fixed-term deposits into mutual funds. A broader aggregate that includes M2+, CSBs, and all mutual funds and thus provides a better estimate of broad money growth, grew at a moderate pace during 1997. The recent behaviour of the broad monetary aggregates continues to suggest that inflation will remain low in coming years.

Existing literature documents that house prices respond to monetary policy surprises with a significant delay, taking years to reach their peak response. We present new evidence of a much faster response.

Since the May Report, the international economic environment has continued to improve. Economic activity abroad grew faster than expected, while inflation in the major economies remained subdued.