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Deputy Governor Paul Beaudry discusses the benefits of being near the Bank’s 2% inflation target and the dangers of straying from it for too long.

Although the current inflation-targeting regime has served Canadians well, sound public policy demands the continuous exploration of possible improvements in the monetary policy framework.

Although many countries have abandoned monetary targeting in recent decades, monetary aggregates are still useful indicators of future economic activity. Past research has shown that, compared with other monetary aggregates and expressed in real terms, net M1 and gross M1 have traditionally provided superior leading information for output growth.

The financial system makes an important contribution to the welfare of all Canadians. The ability of households and firms to confidently hold and transfer financial assets is one of the fundamental building blocks of the Canadian economy.

We consider two trade-offs inherent to extraordinary forward guidance (EFG): potency versus flexibility, and the credibility of forward guidance versus the credibility of inflation targeting. We argue that the form of EFG used by the Bank of Canada during the COVID‑19 pandemic balanced both trade-offs relatively well.

In a cashless economy, would the private sector invest in the optimal level of safety in a deposit-based payment system? In general, because of externalities, the answer is no. While the private sector could over- or under-invest in safety, the government can use taxes or subsidies to correct private incentives.

Can macroprudential foreign exchange (FX) regulations on banks reduce the financial and macroeconomic vulnerabilities created by borrowing in foreign currency? To evaluate the effectiveness and unintended consequences of macroprudential FX regulations, we develop a parsimonious model of bank and market lending in domestic and foreign currency and derive four predictions.

This special issue, “Real-Financial Linkages,” examines the Bank’s research using theoretical and empirical models to improve its understanding of the linkages between financial and macroeconomic developments in the wake of the recent global financial crisis.

We compare the Federal Reserve’s asset purchase programs with those implemented by the Bank of England and the Swedish Riksbank, and the Swiss National Bank’s reserve expansion program.