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Although dealership government and equity securities have, on the surface, similar market structures, the author demonstrates that some subtle differences exist between them that are likely to significantly affect the way market-makers trade, and as such have an impact on the liquidity that they provide.

Digital currencies have attracted strong interest in recent years and have the potential to become widely adopted for use in making payments. Public authorities and central banks around the world are closely monitoring developments in digital currencies and studying their implications for the economy, the financial system and central banks.

Explanations of changes in asset prices as being due to exogenous changes in risk appetite, although arguably controversial, have been popular in the financial community and have also received some attention in attempts to account for recent financial crises. Operational versions of these explanations are based on the assumption that changes in asset prices can be decomposed into a part that can be attributed to changes in riskiness and a part attributable to changes in risk aversion, and that some quantitative measure can capture these effects in isolation.

We exploit the panel dimension of the Canadian Financial Monitor (CFM) data to estimate the impact of retail payment innovations on cash usage. We estimate a semiparametric panel data model that accounts for unobserved heterogeneity and allows for general forms of non-random attrition.

In the United States, the Federal Reserve has a dual mandate of promoting stable inflation and maximum employment. Since the Fed directly controls only one instrument - the federal funds rate - the authors argue that the Fed's priorities continuously alternate between inflation and economic activity.

We construct a small-open-economy, New Keynesian dynamic stochastic general-equilibrium model with real-financial linkages to analyze the effects of financial shocks and macroprudential policies on the Canadian economy. Our model has four key features.

The federal government and the Bank of Canada have been committed for some time to achieving and maintaining price stability as a way to foster a rising standard of living for all Canadians. To support this objective, the inflation-control target range of 1 to 3 per cent was recently extended through to the end of 2001. By then, the government and the Bank plan to announce a long-run target for monetary policy. In this article, the authors provide an overview of the most recent empirical evidence on the benefits of lower inflation. They draw on an extensive earlier survey and on work presented at two recent conferences on price stability hosted by the Bank of Canada. They find that, when inflation and tax interactions are taken into account, there are large benefits to lowering inflation. When these benefits are compared with the transitional costs associated with lowering inflation, significant positive benefits remain. However, the authors note that the extension of the inflation-control targets to the end of 2001 allows further research to ensure an operational definition of price stability that will help Canadians achieve a high standard of living.

The research findings highlighted in this article suggest that firm-size differences play a significant role in explaining the productivity gap between Canada and the United States. The authors review factors that lead to a positive relationship between productivity and size and then look at Canadian evidence of this relationship at the firm level. They quantify the extent to which the change in Canadian productivity as well as the Canada-U.S. productivity differences can be accounted for by the change in the importance of large firms and identify several factors that play a role in determining average firm size and aggregate productivity.

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Brass Cash Register, 1910

The register is part of the National Currency Collection, Bank of Canada.

Photographed by Gord Carter, Ottawa.

I am honoured to address members of the Canadian Association for Business Economics. My remarks today will focus on critical issues that the Bank of Canada has studied over the past four years and how this research will inform our work as we move forward post crisis.