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This paper provides an overview of digitalization and its economic implications. We assess the scope of digitalization in Canada as well as the challenges related to its measurement.

The premise that exchange rate pass-through has declined is critically reassessed; intensity in the negative feedback process between financial sector developments and the real economy during the recent global crisis is examined; update on past decade’s changing trends in debt issuance in Canada relative to those in other capital markets.

Interconnectedness among insurers and reinsurers at a global level is not well understood and may pose a significant risk to the sector, with implications for the macroeconomy. Models of the complex interactions among reinsurers and with other participants in the financial system and the real economy are at a very early stage of development.

The market for cryptoassets has exploded in size in the 10 years since bitcoin was launched. The technology underlying cryptoassets, blockchain, has also been held up as a technology that promises to transform entire industries.

When a bank holds a lot of safe assets, it is well situated to deal with funding stress. But when all banks hold a lot of safe assets, a pecuniary externality implies that their (wholesale) funding costs increase. This reduces banks’ ability to hold capital buffers and thus, paradoxically, increases the frequency of funding stress.

Some suggest the global economy is facing a fourth industrial revolution. Bank researchers discuss the possible implications of digitalization on the economy. This issue also shares insights on the effectiveness of some unconventional monetary policies in a small open economy, how Government of Canada bonds are used throughout their life cycle, as well as how the Big Six Canadian banks choose their funding strategies and why. The final article examines the slow growth in business investment.

The Bank of Canada considers a wide range of information and analysis before making a monetary policy decision and uses carefully articulated models to produce economic projections and to examine alternative scenarios. This article describes an ongoing research agenda at the Bank to develop models in which financial variables play an active role in the transmission of monetary policy actions to economic activity. Such models can help to analyze information from the financial side of the economy and to provide an overall view of the implications of financial developments for the current economic outlook. The authors also explain how this research can help address other issues relevant to the objectives of monetary policy, including how asset-price movements should be taken into account in the monetary policy framework.

The recent financial crisis has highlighted the importance of adverse selection as a contributing factor to financial market instability.

The ongoing process of price discovery in foreign exchange markets provides valuable information to certain market participants. Recent empirical findings suggest that aggregate measures of order flow convey information about the fundamental value of the exchange rate. Using a market microstructure approach, D'Souza reports on a two-year study of completed transactions within the Canadian and Australian exchange rate markets to examine the relationship between exchange rate returns and trades initiated in different locations. Based on the information content of the trades, he finds that geographic location and hours of operation are two of the factors driving informed interdealer trading.