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This paper uses discrete-choice models to quantify the role of consumer socioeconomic characteristics, payment instrument attributes, and transaction features on the probability of using cash, debit card, or credit card at the point-of-sale.

This section of the Financial System Review examines the recent performance of the Canadian financial system and the factors, both domestic and international, that are influencing it. In each issue, one or more subjects of particular interest are discussed as highlighted topics.

The Canadian financial system comprises financial markets, financial institutions, and the clearing and settlement systems.

This paper introduces new weighting schemes for model averaging when one is interested in combining discrete forecasts from competing Markov-switching models. In particular, we extend two existing classes of combination schemes – Bayesian (static) model averaging and dynamic model averaging – so as to explicitly reflect the objective of forecasting a discrete outcome.

This article examines the efforts of the major advanced countries to strengthen the international financial system in order to avoid financial crises such as those that occurred in emerging-market economies in the 1990s. These efforts have focused on crisis prevention and crisis management. The prevention of such crises has necessitated the formation of new international groups that include emerging markets in their membership. Measures have also been taken to reduce the vulnerability of countries to such crises. These measures have centered on the need for appropriate macroeconomic policies, including the need for sustainable exchange rate regimes, sound domestic financial systems, and prudent risk management. In the area of crisis management, the International Monetary Fund (IMF) has been given access to additional resources for lending to countries that experience financial crises. The IMF has also established new lending facilities for use in such circumstances. It has also been agreed that the private sector will need to play a greater role in the management of such crises in the future.

We analyze money financing of fiscal transfers (helicopter money) in two simple New Keynesian models: a “textbook” model in which all money is non-interest-bearing (e.g., all money is currency), and a more realistic model with interest-bearing reserves.

The author attempts to track Canadian labour productivity over the past four decades using a multivariate dynamic factor model that, in addition to the labour productivity series, includes aggregate compensation and consumption information. Productivity is assumed to switch between two regimes (the high-growth state and the low-growth state) with different trend growth rates according to […]

There is a close link between prices of equity options and the default probability of a firm. We show that in the presence of positive expected equity recovery, standard methods that assume zero equity recovery at default misestimate the option-implied default probability.

In this issue, Bank researchers discuss inflation dynamics and global trade following the 2007–09 financial crisis. Other articles explore changes to the governance and regulation of the Canadian payments system and outline the banking services provided by the Bank of Canada. Finally, the results of the 2013 Methods-of-Payment Survey are presented.

The observed predictability of excess returns in equity and foreign exchange markets has largely been attributed to the presence of time-varying risk premiums in these markets. For example, excess equity returns were found to be explained by various financial and economic variables.