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As the title of the conference suggests, we have seen many boom-and-bust cycles in the commodity sector. This raises one obvious and central question: How can we avoid them in the future?

Investors who trade based on good research are said to be the backbone of stock markets: They conduct research to discover the value of stocks and, through their trading, guide financial prices to reflect true value. What can make their job difficult is that high-speed, short-term traders could use machine learning and other technologies to infer when informed investors are trading.

Because commodity prices help determine Canada’s terms of trade, employment, income and, ultimately, inflation, it is important to understand what causes them to fluctuate. Since the early 1900s, there have been four commodity price supercycles—which we define as extended periods of boom and bust that can take decades to complete. Now in its downswing phase, the current supercycle started after growth in China and other emerging-market economies in the mid-1990s resulted in an unexpected demand shock. The extent of this downswing depends on numerous factors that are presently uncertain.

During the COVID-19 pandemic, Canadian financial institutions offered debt-relief programs to help borrowers cope with job losses and economic insecurity. We consider the low take-up rates for these programs and suggest that to be effective, such programs must be visible and easy to use.

Consumers, businesses and banks make millions of payments each day using a variety of instruments, such as debit cards, cheques and wires. Canada is currently developing three new systems to process these transactions: Lynx, Settlement Optimization Engine (SOE) and Real-Time Rail (RTR).

This paper examines the impact of product market competition and corporate governance on the cost of debt financing and the use of bond covenants. We find that more anti-takeover provisions are associated with a lower cost of debt only in competitive industries.

We develop a discrete-time affine stochastic volatility model with time-varying conditional skewness (SVS). Importantly, we disentangle the dynamics of conditional volatility and conditional skewness in a coherent way.

G-20 representatives, academics, market participants, and members of international financial institutions were brought together in Ottawa to explore the connection between robust financial markets and economic growth and development, share experiences, and to develop policy recommendations, where possible. Participants identified several areas they deemed critical for fostering strong domestic financial markets and reducing external vulnerability: sound macroeconomics policies, strengthened financial infrastructures and banking systems, and exchange rate flexibility for countries with widely open capital accounts. Papers presented in the six sessions and keynote address highlighted a number of issues, including currency mismatches, the sequence of financial liberalization and supervisory reforms, the development of local financial markets, infrastructure building and governance, and appropriate incentives.

How are your past, current and future earnings related to those of your parents? We explore this by using 37 years of Canadian tax data on two generations.

Risks to the stability of both the Canadian and the global financial systems appeared to be diminishing for most of the period since the last Financial System Review (FSR), as the recovery in financial conditions and the macroeconomic environment continued to solidify.

FSR Highlights - June 2010