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This paper explores the arguments for and against a common currency for Canada and the United States and attempts to determine whether such an arrangement would offer any significant advantages for Canada compared with the present flexible exchange rate system. The paper first reviews the theoretical arguments advanced in the economics literature in support of fixed and flexible currency arrangements. A discussion of Canada's past experience with the two exchange rate systems follows, after which there is a survey of the empirical evidence published on Canada's current and prospective suitability for some form of fixed currency arrangement with the United States. The final section of the paper examines critically a number of concerns raised about the behaviour of the current flexible exchange rate system.

Deputy Governor Lawrence Schembri talks about changes to the labour market, and how the pandemic affected Canadian workers. He also discusses how the Bank is adapting labour market analysis tools to help guide monetary policy decisions that will support a more inclusive recovery.

Since the creation of Bitcoin in 2009, over 2,000 cryptocurrencies have been issued. We evaluate how well a cryptocurrency functions as a payment system.

We show that issuing a deposit-like central bank digital currency (CBDC) with a proper interest rate would encourage banks to pay higher interest to keep their customers. Banks would then attract more deposits and offer more loans. Hence, a CBDC would not necessarily crowd out private banking.

This issue features a summary of the Bank’s annual conference, which this year dealt with financial globalization, and three articles that present research by Bank staff on Canada’s mortgage market, the role of adverse selection in financial crises, and payment networks.

This note examines the merits of monetary policy adjustments in response to financial stability concerns, taking into account changes in the state of knowledge since the renewal of the inflation-targeting agreement in 2011. A key financial system vulnerability in Canada is elevated household indebtedness: as more and more households are nearing their debt-capacity limits, the likelihood and severity of a large negative correction in housing markets are also increasing.

This paper surveys the literature on the zero bound on the nominal interest rate. It addresses questions ranging from the conditions under which the zero bound on the nominal interest rate might occur to policy options to avoid or use to exit from such a situation. We discuss literature that examines historical and country evidence, and literature that uses models to generate evidence on this question.

Artificial neural networks (ANN) are employed for high-frequency Canada/U.S. dollar exchange rate forecasting. ANN outperform random walk and linear models in a number of recursive out-of- sample forecasts.

We survey several key mechanisms that explain the composition of international capital flows: foreign direct investment, foreign portfolio investment and debt flows (bank loans and bonds). In particular, we focus on the following market frictions: asymmetric information in capital markets and exposure to liquidity shocks.

Terms-of-trade shocks are known to be key drivers of business cycles in open economies. This paper argues that terms-of-trade shocks were also important for house price fluctuations in a panel of developed countries over the 1994–2015 period.