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The scale of safe assets suggests a structural demand for a safe wealth share beyond transaction and liquidity roles. We study how investors achieve a reference wealth level by combining self-insurance and contingent liquidation of investment. Intermediaries improve upon autarky, insuring investors with poor self-insurance and limiting liquidation.

We find the top 10% of the income distribution accounts for three-quarters of the gap in GDP per adult between Canada and the United States. The large gaps in income for high-income earners help distinguish between alternative explanations of this persistent gap in GDP per adult.

Senior Deputy Governor Carolyn Rogers looks at the mortgage market in Canada—past, present and future.

We investigate the unintended consequences of the Home Affordable Refinance Program (HARP). Originally designed to help borrowers refinance after the 2008–09 global financial crisis, HARP inadvertently strengthened the market power of incumbent lenders by creating a cost advantage for them. Despite a 2013 policy rectifying this cost advantage, we still find significant welfare losses for borrowers.

We examine the role of debt in amplifying and propagating recessions. Firms’ debt adjustment makes recessions deeper but makes expansions gradual. In particular, when the aggregate business leverage is ten percentage points above average, the half-life of the recovery doubles.

We explore the consumer value proposition of a hypothetical Digital Canadian Dollar, adoption considerations and the users who would benefit most from this potential new payment method. We employ a design-thinking consultation methodology, allowing participants to interact with research prototypes of increasing complexity to reveal user preferences, constraints and adoption influences.

Modeling and estimating persistent discrete data can be challenging. In this paper, we use an autoregressive panel probit model where the autocorrelation in the discrete variable is driven by the autocorrelation in the latent variable. In such a non-linear model, the autocorrelation in an unobserved variable results in an intractable likelihood containing high-dimensional integrals.

In this issue of the Financial System Review, the Bank of Canada’s Governing Council judges that the risks to the stability of Canada’s financial system are high and have increased markedly over the past six months, owing primarily to an escalation of the sovereign debt crisis in the euro area and a weaker global economic outlook.

Erratum: The data for Chart 7 on page 8 were plotted incorrectly. See revised chart.

This issue of the Financial System Review reflects the Bank’s judgment that high household indebtedness and housing market imbalances remain the most important vulnerabilities. While these vulnerabilities remain elevated, policy measures continue to improve the resilience of the financial system. A third vulnerability highlighted in the FSR concerns cyber threats to an interconnected financial system.

I study the welfare consequences of regulations on high-cost consumer credit in the United States and find that borrowing limits have distributional impacts on households with self-control issues.