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Financial market expectations regarding future changes in the target for the overnight rate of interest are an important source of information for the Bank of Canada. Financial markets are the mechanism through which the policy rate affects other financial variables, such as longer-term interest rates, the exchange rate, and other asset prices. An accurate measure of their expectations can therefore help policy-makers assess the potential impact of contemplated changes. Johnson focuses on the expectations hypothesis, which measures expectations of future levels of the target overnight rate as implied by current money market yields. Although expectations can be derived from the current yield on any short-term fixed-income asset, some assets have proven to be more accurate predictors than others. The implementation of a policy of fixed-announcements dates has coincided with the increased predictive power of these short-term assets. As a result of this improvement, a relatively simple model of the yield curve can now provide an accurate measure of financial market expectations.

Since the autumn of 1997, the regional offices of the Bank of Canada have conducted quarterly consultations with businesses across Canada. These consultations, summarized in the Business Outlook Survey (BOS), are structured around a survey questionnaire that covers topics of importance to the Bank, notably business activity, pressures on production capacity, prices and inflation, and credit conditions.

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.

We examine the Canadian money market fund (MMF) sector and find that it has grown rapidly, holding a large share of treasury bills and commercial paper. Unlike in some other jurisdictions where investor outflows likely amplified stresses, Canadian MMFs experienced inflows during the March 2020 market turmoil.

We develop a closed economy model to study the interactions among sovereign risk premia, fiscal limits, and fiscal policy. The stochastic fiscal limits, which measure the ability and willingness of the government to service its debt, arise endogenously from a dynamic Laffer curve.

Why do BigTech platforms introduce payment services? We explore this using a model in which a monopoly platform faces a trade-off between the costs associated with privacy concerns and the revenue from data services. We then analyze the feedback effects between data and payments.

Deputy Governor Sylvain Leduc discusses how upgrading Canada’s core payment systems will contribute to financial stability and help the Bank keep inflation on target.

This paper examines the welfare cost of rare housing disasters characterized by large drops in house prices. I construct an overlapping generations general equilibrium model with recursive preferences and housing disaster shocks.

Does consumption smoothing fundamentally decrease during macroeconomic disasters? This paper uses a large historical dataset (1870–2016) for 16 industrial economies to show that during macroeconomic disasters (e.g., wars, pandemics, depressions) aggregate consumption and income are significantly less decoupled than during normal times.

We simulate introducing a central bank digital currency (CBDC) and consider consumer adoption, merchant acceptance and usage at the point of sale. Modest adoption frictions significantly inhibit CBDC market penetration along all three dimensions. Incumbent responses to restore pre-CBDC market shares are moderate to small and further reduce the impact of a CBDC.