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In an economy where production takes place in multiple stages and is subject to financial frictions, how firms finance intermediate inputs matters for aggregate outcomes. This paper focuses on trade credit—the lending and borrowing of input goods between firms—and quantifies its aggregate impacts during the Great Recession.

Existing studies show that U.S. Treasury bond price changes are mainly driven by public information shocks, as manifested in macroeconomic news announcements and events. The literature also shows that heterogeneous private information contributes significantly to price discovery for U.S. Treasury securities.

According to the rent-extraction hypothesis, weak corporate governance allows entrenched CEOs to capture the pay-setting process and benefit from events outside of their control – get paid for luck.

I quantify the importance of changes in household preferences on household inflation rates using 11 years of scanner data for 11,000 US households. My results suggest that changes in household preferences are an important driver of inflation dynamics at the household level.

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.

This paper examines the impact of bank consolidation on mortgage rates in order to evaluate the extent to which mortgage markets are competitive. Mortgage markets are decentralized and so rates are determined through a search and negotiation process.

An effective exchange rate is a measure of the value of a country's currency vis-à-vis the currencies of its most important trading partners. The Bank of Canada has created a new Canadian-dollar effective exchange rate index (CERI) to replace the C-6 index that it currently uses. The CERI uses multilateral trade weights published by the International Monetary Fund and includes the six currencies of countries or economic zones with the largest share of Canada's international trade. As such, it better reflects the recent changes in Canada's trade profile, including the rise in the importance of China and Mexico and the relative decline in importance of Europe and Japan in Canada's international trade. The author describes the methodology and construction of the new index and reviews the advantages it offers over the C-6, particularly the use of multilateral trade weights, the inclusion of trade in services, and the use of more recent trade data.

The author proposes and evaluates econometric models that try to explain and forecast real quarterly housing expenditures in Canada. Structural and leading-indicator models of the Canadian housing sector are described.

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 reviews the range of extraordinary programs launched by the Bank of Canada in response to the pandemic-related financial market disruption. It provides some recommendations for future interventions to ensure the programs are appropriately structured for the financial and economic stresses they are intended to address.