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Policy-makers around the world met the intensification of the global financial crisis at the end of 2008 with a forceful response aimed at restoring confidence in the global financial system, promoting the flow of credit, and supporting economic activity.

FSR Highlights - June 2009

Erratum: Legends for Chart 13 on page 15 of the June 2009 issue should read: Argentina (right scale), Mexico (left scale). See revised chart.

We estimate the effects of economic uncertainty on time use and discuss its macroeconomic implications. We develop a model to demonstrate that substitution between market and non-market work provides an additional insurance margin to households, weakening precautionary savings and labour supply and lowering aggregate demand, ultimately amplifying the contractionary effects of uncertainty.

Globalization is the opportunity and the challenge of our age. It has the potential to lift billions out of poverty, vastly expand economic prospects, and develop a more diverse and resilient global economy.

We use Bayesian predictive decision synthesis to formalize monetary policy decision-making. We develop a case-study of monetary policy decision-making of an inflation-targeting central bank using multiple models in a manner that considers decision goals, expectations and outcomes.

The goods and services sectors have experienced considerably different dynamics over the past three decades. Our goal in this paper is to understand how such contrasting behaviors at the sectoral level affect the aggregate level of trend inflation dynamics.

The Bank expects Canada’s economy to grow by almost 4 percent on average in 2021 and 2022, following a decline of about 5 ½ percent in 2020.

We present the R package MSTest, which implements hypothesis testing procedures to determine the number of regimes in Markov switching models. The package provides several testing frameworks, including Monte Carlo likelihood ratio tests, moment-based tests, parameter stability tests, and classical likelihood ratio procedures.

Offline functionality is a key consideration for a potential CBDC. We describe the different types of offline functionality based on their duration outside of network connection—either intermittent (for short periods) or extended (for longer periods). We discuss the advantages and drawbacks of each and consider implications for end-user devices, system resilience and universal accessibility.

We investigate the effect of inflation on output and welfare in the laboratory. Consistent with monetary theory, we find that inflation acts as a tax on monetary exchange and reduces output and welfare.

Innovations in basic information technologies, in payment applications, and in the availability of global markets, as well as substantial changes in financial sector policy, have fundamentally changed how the retail payments system in Canada operates. Principally, the volume and types of electronic payments have grown, and there is increased participation by diverse groups of financial and non-financial institutions as providers of retail payment services. The resulting policy problem for payment systems is how best to benefit from efficiency gains while managing payment risks. O'Connor examines the effect of the technological and legislative changes and the initiatives developed by the public and private sectors in such areas as the market arrangements for services; customer risks and costs for settling large-value retail payments; the security of payment information and the efficiency with which it is transmitted; and the effects of differing regulatory regimes on competition among providers of retail payment services.