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Commodity prices have increased dramatically and persistently over the past several years, followed by a sharp reversal in recent months. These large and persistent movements in commodity prices raise questions about their implications for global inflation. The process of globalization has motivated much debate over whether global factors have become more important in driving the […]

This article examines four indicators of balance-sheet risks—leverage, capital, asset liquidity and funding—among different types of financial institutions in Canada over the past three decades. It also discusses relevant developments in the banking sector that could have contributed to the observed dynamics. The authors find that the various risk indicators decreased during the period for most of the non-Big Six financial institutions, but remained relatively unchanged for the Big Six banks. In addition, the balance-sheet risk indicators became more heterogeneous across financial institutions. The observed overall decline and increased heterogeneity follow certain regulatory changes, such as the introduction of the liquidity guidelines on funding in 1995 and the implementation of bank-specific leverage requirements in 2000. Given that these regulations required more balance-sheet risk management, they have likely contributed to the increased resilience of the banking sector.

This paper empirically investigates the possibility that the effects of shocks to output depend on the level of inflation. The analysis extends Elwood's (1998) framework by incorporating in the model an inflation-threshold process that can potentially influence the stochastic properties of output.

We use a small open economy model with overlapping generations to evaluate secular dynamics of the neutral rate in Canada from 1980 to 2018. We find that changes in both foreign and domestic factors resulted in a protracted decline in the neutral rate.

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).

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

This issue features three articles that present research and analysis by Bank of Canada staff. The first updates previous Bank estimates of measurement bias in the Canadian consumer price index; the second uses a new term-structure model to analyze the relationship between the short-term policy rate and long-term interest rates; and the third examines indicators of balance-sheet risks at financial institutions in Canada.

In a search model of production, where agents accumulate heterogeneous amounts of human capital, an individual worker's wage depends on average human capital in the searching population.

Foreign investment is often constrained by two forms of political risk: expropriation and corruption. We examine the role of government corruption in foreign direct investment (FDI) when contracts are not fully transparent and investors face the threat of expropriation.

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.