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Although the standard of living of Canadians has improved as a result of terms-of-trade gains created by the sharp rise in real commodity prices over the past five years or so, the commodity-price increase, combined with an exchange rate appreciation and real income gain, triggered structural adjustments by altering underlying economic incentives. The frictions generated in adjusting to the relative price shock have likely contributed to hold back aggregate productivity growth. Dupuis and Marcil examine the structural adjustments that have been required-in particular, the resource reallocation among the different sectors of the economy-and its effects on employment, output, and productivity, as well as the responses of final domestic demand and external trade flows.

Corporate bond spreads worldwide have widened markedly since the beginning of the credit crisis in 2007. This article examines default and liquidity risk–the main components of the corporate bond spread–for Canadian firms that issue bonds in the U.S. market, focusing in particular on their evolution during the credit crisis. They find that, during this period, the liquidity component increased more for speculative-grade bonds than it did for investment-grade bonds, consistent with a "flight-to-quality" phenomenon. An important implication of their results for policy-makers seeking to address problems in credit markets is that the liquidity risk in corporate spreads for investment and speculative bonds behaves differently than the default risk, especially during crisis episodes.

In his speech, Senior Deputy Governor Tiff Macklem discusses the G-20 reform agenda to achieve durable financial stability and sustainable and balanced economic growth.

Comments: On 18 July 2000, the government and Bank of Canada made public a discussion paper concerning the management of the federal government's cash balances. The paper outlined the current framework and proposed changes, intended to increase competition and to strengthen the management of risks, in particular the credit risks involved in the investment of […]

In this issue of the Financial System Review, the Governing Council judges that the risks to the stability of Canada’s financial system remain high, as in December. The sources of the key risks are broadly the same as those highlighted at that time and emanate primarily from the external environment.

Errata: The colour labels for Chart 11 in the June 2012 issue and for Chart 12 in the December 2011 isssue were defined incorrectly. See revised charts.

Deputy Governor Lawrence Schembri calls for a collaborative approach to achieving a payments system that is innovative, safe, and efficient.

In these excerpts from a presentation to a conference in Toronto, Deputy Governor Charles Freedman analyses the way in which the monetary conditions index (MCI) enters into the Bank's thinking and actions. He describes how the Bank works in the context of a forward-looking assessment of economic developments and inflationary pressures to decide upon a desired path for the MCI that will result in a rate of inflation, six to eight quarters ahead, that is within the Bank's target band. Mr. Freedman also uses specific examples to explain how various shocks to the economy can change the Bank's desired path for monetary conditions. He describes the role that tactical considerations relating to market circumstances play regarding the timing of Bank actions to bring monetary conditions onto the desired path and emphasizes the need to give precedence to steadying nervous markets.

This note summarizes the key findings from Bank of Canada staff analytical work examining the reasons for the recent weakness in Canadian non-energy exports. Canada steadily lost market share in US non-energy imports between 2002 and 2017, mostly reflecting continued and broad-based competitiveness losses.

This paper first describes the Bank of Canada's approach to the design of large-value clearing and settlement systems. It then examines the way the Bank has operated under the Payment Clearing and Settlement Act, passed by Parliament in July 1996.