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This paper reviews recent efforts to monitor and assess systemic risk in the Canadian financial system and outlines a framework for future system-wide stress testing.

The theme of the conference, "managing the recovery," is particularly timely: As we move past the gravest dangers of the financial crisis toward better days, attention has turned to the policy challenges posed by the recovery.

Model-based forecasts of important economic variables are part of the range of information considered for monetary policy decision making.

We use controlled laboratory experiments to test the causal effects of central bank communication on economic expectations and to distinguish the underlying mechanisms of those effects. In an experiment where subjects learn to forecast economic variables, we find that central bank communication has a stabilizing effect on individual and aggregate outcomes and that the size of the effect varies with the type of communication.

BoC-GEM, an adaptation of the Global Economy Model, initially developed at the International Monetary Fund and the New York Federal Reserve, is a very useful tool to tackle a broad range of issues pertinent to the current economic context, such as the recent movements in commodity prices and the adjustment of global imbalances. This article describes the structure and functioning of BoC-GEM and details some examples of recent application in the areas of monetary policy and issues in the real economy and questions of financial stability and describes ongoing research into introducing a financial sector into the model.

The MacroFinancial Risk Assessment Framework (MFRAF) models the interconnections between liquidity and solvency in a financial system, with multiple institutions linked through an interbank network. The MFRAF integrates funding liquidity risk as an endogenous outcome of the interactions between solvency risk and the liquidity profiles of banks, which is a complementary approach to the new […]

Examination of progress in the Bank’s exploration of two alternatives to the current inflation-targeting framework: (i) lowering the inflation target and (ii) shifting to a price-level target; a review of arguments for and against price-level targeting, focusing on its costs and benefits compared with inflation targeting; assessing the merits of price-level targeting vis-à-vis inflation targeting from a debt-revaluation perspective; quantifying redistribution of wealth in Canada in the face of unexpected inflation.

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.