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In this report, the authors examine and compare twelve private and public sector models of the Canadian economy with respect to their paradigm, structure, and dynamic properties. These open-economy models can be grouped into two economic paradigms.

In the Doug Purvis Memorial Lecture, Governor Stephen S. Poloz shows how changing the mix of monetary and fiscal policies can yield the same outcomes for growth and inflation, but lead to different results for public sector and private sector debt levels, which can impact financial stability.

This paper studies the cost of limited commitment when a central bank has the discretion to adjust policy whenever the costs of honoring its past commitments become high. Specifically, we consider a central bank that seeks to implement optimal policy in a New Keynesian model by committing to a price-level target path.

As a guide for the conduct of monetary policy, most central banks make use of a trend inflation index similar to that employed by the Bank of Canada: the CPI excluding food, energy, and the effect of indirect taxes. In addition to their basic reference index, some central banks regularly publish statistical measures of the trend rate of inflation. The method used for producing these measures is, for the most part, based on the hypothesis that extreme price fluctuations generally reflect temporary shocks to the inflation rate, rather than its underlying trend. In this paper, the author offers a broad survey of studies on the measurement of trend inflation that have been published by the Bank of Canada and presents the results of the most recent work on the subject. Particular attention is paid to two statistical measures that the Bank follows more closely than other measures; namely, the CPIX, a price index that excludes eight of the most volatile CPI components, and CPIW, a measure that retains all the components of the overall index but gives a lower weighting to the most volatile.

Cash use for payments has been steadily decreasing in many countries, including Canada and Sweden. This might suggest an evolution toward a cashless society. But in Canada, cash in circulation relative to GDP has been stable for decades and has even increased in recent years. By contrast, the cash-to-GDP ratio in Sweden has been falling steadily. What has caused this difference? Are there lessons to be learned from comparing the Canadian and Swedish experiences?

Éric Chouinard and Graydon Paulin review the progress to date in implementing Basel III, the new framework of global regulatory standards for the banking sector developed by the Basel Committee on Banking Supervision. The report highlights the expected net benefits of implementing Basel III, as well as the challenges in ensuring international consistency in measuring the risk-weighted capital of banks. It includes a discussion on how implementing Basel III has affected the banking system in Canada and other important jurisdictions, and demonstrates the need for ongoing assessment of the effects on the financial system and the macroeconomy.

How do global oil price shocks spread through Canada’s economy? With Canada’s regionally diverse economy in mind, we explore the implications of oil price shocks for Canadian housing markets and regional economies. We show that the belief that oil price shocks only matter in oil-rich regions is false.

We develop a production-network model to capture how decentralized finance (DeFi) has evolved across different sectors of financial services. The model allows us to measure the value added by different DeFi sectors and to study how the connections across the sectors influence token prices.

We study the trading dynamics in an asset market where the quality of assets is private information of the owner and finding a counterparty takes time. When trading of a financial asset ceases in equilibrium as a response to an adverse shock to asset quality, a large player can resurrect the market by buying up lemons which involves assuming financial losses.