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In its conduct of monetary policy, the Bank of Canada carefully monitors the pace of monetary expansion for indications about the outlook for inflation and economic activity. In recent years, a number of factors have distorted the growth of the traditional broad and narrow aggregates. In this article, the authors discuss the uncertainty surrounding the classification of deposit instruments that has resulted from the elimination of reserve requirements and from other financial innovations. They introduce two new measures of transactions balances, M1+ and M1++ (described more fully in a technical note in this issue of the Review), that internalize some of the substitutions that have occurred. They attribute the deceleration in M1 growth in 1998 partly to the declining influence of special factors, partly to a lagged response to interest rate increases in 1997 and early 1998, and partly to some temporary tightening in credit conditions in the autumn of 1998. The broad monetary aggregate M2++, which includes all personal savings deposits, life insurance annuities, and mutual funds, grew at a steady pace in 1998, presaging growth of about 4 to 5 per cent in total dollar spending and inflation inside the target range.

Various measures indicate that inflation expectations evolve sluggishly relative to actual inflation. In addition, they often fail conventional tests of unbiasedness.

This paper considers a real business cycle model with labor search frictions where two types of incentive pay are explicitly introduced following the insights from the micro literature on performance pay (e.g. Lazear, 1986).

In this paper, we investigate how liquidity conditions in Canada may affect domestic and/or foreign lending of globally active banks and whether this transmission is influenced by individual bank characteristics.

The analysis and forecasting of developments in the U.S. economy have always played a critical role in the formulation of Canadian economic and financial policy. Thus, the Bank places considerable importance on generating internal forecasts of U.S. economic activity as an input to the Canadian projection.

Guided by a macroeconomic model in which non-energy commodity prices are endogenously determined, we apply a new factor-based identification strategy to decompose the historical sources of changes in commodity prices and global economic activity.

The physical network of bank branches is important in how consumers manage their cash holdings. This paper estimates how consumer withdrawal behaviour responds to the distance they must travel to their branch.

This paper proposes a Markov-switching framework to endogenously identify the following: (1) regimes where economies synchronously enter recessionary and expansionary phases; and (2) regimes where economies are unsynchronized, essentially following independent business cycles.