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We study the short-run effects of monetary policy using a search-theoretic monetary model in which agents are subject to idiosyncratic shocks and aggregate monetary shocks.

Adequate cash distribution is one the Bank of Canada’s core interests. Canadians’ ability to access cash influences the Bank’s thinking on issuing a central bank digital currency. We provide a perspective on these issues by exploring access of First Nations reserves to cash.

When prices are sticky, movements in the nominal exchange rate have a direct impact on international relative prices. A relative price misalignment would trigger an adjustment in consumption and employment, and may help to predict future movements in the exchange rate.

In this paper, we empirically study how flagship entry in an online marketplace affects consumers, the platform, and various sellers on the platform. We find flagship entry may benefit consumers by expanding the choice set, by intensifying price competition within the entry brand, and by improving consumer perception for parts of the platform.

This note analyzes different economic models of a central bank digital currency (CBDC) ecosystem where the central bank chooses different levels of market involvement and usage of policy levers. The analysis suggests that there are trade-offs between the costs to the central bank and its ability to achieve policy goals like universal access.

Despite having the world's largest GDP when measured in terms of purchasing-power parities, the third-largest share in world exports, and the world's largest foreign exchange reserves, China has only a minor role in the global financial system. Its banks have a modest international presence; China's currency, the renminbi, is virtually not used outside the country; and Chinese capital markets are not a significant source of financing for foreign borrowers. China's modest level of integration into the global financial system is explained by the emphasis given to domestic policy priorities. As the Chinese economy matures, and as reforms strengthen the domestic financial system, China will become more important in global financial markets. Changes are already occurring as China's financial might is being channeled towards overseas investments, and the authorities have committed to greater exchange rate flexibility. These changes will facilitate integration into the global financial system. In this article, the authors describe the current situation and speculate on the future evolution of Chinese financial institutions and markets.

We investigate the economic forces behind the secular decline in bond yields. Before the anchoring of inflation in the mid-1990s, nominal shocks drove inflation, output and bond yields. Afterward, the impacts of nominal shocks were much less significant.

Long-term Canada-U.S. interest spreads have changed remarkably during the 1990s. The unusually wide spreads of the first half of the decade have given way to an unprecedented run of negative yield differentials. In this article, the author examines the conceptual aspects of yields on international assets and their application to the Canada-U.S. situation. Prior to 1995, investors were unsure that, over the long run, inflation would meet the targets set by the government and the Bank. Policy credibility was undermined by large budget deficits and political uncertainty. In the second half of the decade, confidence was re-established as the fiscal positions of governments improved, long-run price stability became established, and political concerns about Quebec lessened. As long as these fundamentals hold, long-term rates should remain relatively low, even when short-term rates rise.

The year 2006 marked a turning point for the Bank of Canada. We successfully completed our medium-term plan, The Way Forward, and began writing a fresh chapter in the Bank’s history based on a new three-year plan. In this annual report, we do more than give an accounting of past achievements. We also provide forward-looking information on the plans and priorities in our new medium-term plan. And as we advance, we are always mindful of the Bank’s original mandate, set out more than 70 years ago, to “promote the economic and financial welfare of Canada.”

The Reports section of the Financial System Review examines selected issues of relevance to the Canadian and global financial systems. The December 2015 issue features two reports on significant developments in the financial system related to household finances: the importance of residential mortgage securitization for Canadian housing finance and the changing patterns of indebtedness of Canadian households.