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This commentary, completed in mid-January, discusses economic and financial developments in Canada since the publication of the November Monetary Policy Report. Conditions in world financial markets have improved since November, but the global economic environment is still uncertain. The main uncertainty centres on Japan, which remains in recession. If bank reforms and stimulative fiscal measures are effectively implemented in that country, a gradual recovery should begin there during 1999. The economic expansion in other major industrialized countries, which together account for over half of world output, is expected to remain well sustained. The U.S. economy, in particular, continues to outstrip expectations and even if it slows, as expected, will likely still operate at high levels. In Canada, indicators of domestic demand remain relatively firm, although the growth of monetary and credit aggregates has moderated. The Bank's outlook for 1999 continues to be one of ongoing economic expansion. Inflation is expected to stay in the lower half of the target range of 1 to 3 per cent. Update on 23 February 1999: The global economic environment in which Canada operates is still uncertain. In Japan, there is little sign yet that the economy is about to move out of its slump, while in Europe, the latest data point to a softening in economic activity. In sharp contrast, the U.S. economy continues to outstrip expectations, ending 1998 with growth of 5.6 per cent (annual rate) in the fourth quarter—much stronger growth than had been anticipated earlier. Despite lingering economic uncertainty, global financial markets have been much more stable compared with last autumn and do not seem to have been substantially affected by the events in Brazil. This would appear to reflect the effects of reductions in official interest rates around the world since the autumn as well as the success some emerging-market economies have had in dealing with their problems. As a result, international investors and markets seem to have a renewed sense of their ability to assess and differentiate among debtor countries as well as other borrowers. Here in Canada, even if we allow for the effects of temporary factors (such as the return to normal operations following the end of major labour disruptions), the underlying momentum of the economy is healthy. While resource-based export revenues remain weak, exports of other goods, particularly automotive products, surged in the closing months of 1998, bolstered by continued strong U.S. demand and Canada's improved competitive position. Growth in consumer spending eased through the latter part of 1998, mainly because of the effects on confidence of last autumn's financial turbulence and the end of financing incentives on automobile purchases. The reversal of these factors should have a beneficial effect on consumer demand early in 1999. Housing starts recovered in the fourth quarter, following the resolution of labour disputes, while business investment continued to expand modestly. The robust, broad-based employment gains recorded through the fourth quarter carried into January 1999. On balance, recent data suggest that real GDP increased by about 4 per cent (annual rate) in the fourth quarter—at the upper end of the range expected at the time the commentary was completed. The latest data point to core inflation fluctuating around the lower end of the inflation-control target range of 1 to 3 per cent. While upward pressure on the price level from the past exchange rate depreciation continues, the dampening effects of ongoing intense retail competition, excess supply in product markets, and restrained unit labour costs have kept overall inflation somewhat below expectations. Improved financial market conditions, coupled with the general firmness of recent domestic economic data and a slightly more favourable outlook for commodity prices, have supported a stronger Canadian dollar since completion of the commentary. Because of this, monetary conditions have tightened somewhat further since mid-January. With a measure of stability returning to global financial markets, concerns about the effects of financial volatility on consumer and business confidence in Canada have diminished. As noted in the commentary, such concerns were an important consideration for the Bank in the period following the Russian crisis, when particular emphasis had to be placed on calming financial markets. The easing of these pressures has made it possible to refocus attention on the medium-term policy objective of keeping the trend of inflation inside the target range.

Deputy Governor Sharon Kozicki talks about how the Bank of Canada is using non-traditional data to better inform its monetary policy decisions.

This paper estimates potential exposures, netting benefits and settlement gains by merging retail and wholesale payments into batches and conducting multiple intraday settlements in this hypothetical model of a single "calibrated payments system." The results demonstrate that credit risk exposures faced by participants in the system are largely dependent on their relative activity in the retail and wholesale payments systems.

At the time of the November 2000 Monetary Policy Report, although signs of the anticipated slowing of the U.S. economy were becoming apparent, the momentum of the global economy was considered strong.

The Bank of Canada’s Communications Department has developed a framework to quantify and qualify the Bank’s communications efforts and their results. Using data-based measurement and evaluation, the department can assess the impact of the Bank’s communications activities and gauge the department’s contribution to the Bank’s overall goals.

Theoretically, house prices will reveal greater disparities between regions than prices for more easily tradable goods and services. This contributes to regional disparities in inflation. In this report the author reviews a range of factors that are likely to cause greater disparities in house price inflation than in the price inflation of other goods and […]

In this paper, we analyze the dynamic behaviour of employment and hours worked per worker in a stochastic general equilibrium model with a matching mechanism between vacancies and unemployed workers. The model is estimated for the United States using the Generalized Methods of Moments (GMM) estimation technique. An increase in government spending raises hours worked […]

Proceedings of a conference held by the Bank of Canada, April 2005

The Bank of Canada welcomes the initiatives announced today to support the asset-backed commercial paper market in Canada.

2013 proved to be a challenging year for the Bank of Canada. Inflation continued to drift below target, and the economy failed to move onto a more sustainable track. The 2013 Annual Report highlights key achievements over the year, describes the Bank’s corporate governance, and presents the financial statements in conjunction with Management’s Discussion and Analysis.