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Canada is undertaking a major initiative to modernize its payments ecosystem. The modernized ecosystem is expected to bring significant benefits to Canadian financial markets and the overall economy. We develop an empirical framework to quantify the economic benefits of modernizing the payment system in Canada.

Given technological advances and the widespread use of the Internet, various digital currencies have emerged. In most cases, Internet platforms such as Facebook and Amazon restrict the functionality of their digital currencies to enhance the business model and maximize their profits. While platform-based digital currencies could increase the efficiency of retail payments, they could also raise some important policy issues if they were to become widely used outside of the platform. Thus, it is important to closely monitor the evolution of these digital currencies.

This paper studies optimal need-based financial aid when parental transfers—unobserved by policymakers—vary across and within families of similar means. Using data on U.S. college students, I document substantial inequality in parental transfers, especially among wealthier families. I then analyze how this affects aid design aimed at reducing inefficiencies from borrowing constraints and the aid itself.

Deputy Governor Lawrence Schembri talks about the Bank’s latest interest rate announcement and discusses how COVID-19 has affected savings and the outlook household spending.

The Bank expects Canada’s economy to grow by almost 4 percent on average in 2021 and 2022, following a decline of about 5 ½ percent in 2020.

We build a tractable New Keynesian model to study and compare four types of monetary and fiscal policy: policy rate adjustments, quantitative easing, lump-sum fiscal transfers and government spending. We find that tax-financed fiscal policy is more stimulative than debt-financed policy, and optimal policy coordination needs at least two of these four policy instruments.

This note reviews the channels through which scheduled minimum wage increases over the coming years may affect Canadian economic activity and inflation and assesses their macroeconomic impacts. From reduced-form estimates of direct minimum wage pass-through, we find that consumer price index (CPI) inflation could be boosted by about 0.1 percentage point (pp) on average in 2018.

We study how different types of monetary policy shape the distributional effects of external economic shocks on households’ consumption in a small open economy. Our results present a trade-off between maintaining overall stabilization and controlling consumption inequality.

The authors attempt to determine whether the primary advantage of the flexible exchange rate between Canada and the United States—the rapid adjustment of the real exchange rate following an asymmetrical shock—is as evident at the regional as at the national level.

Over the past several years, the Bank for International Settlements has noted that Canada’s credit-to-GDP gap has widened and is above thresholds indicating future banking stress.