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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.

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.

How much of a CBDC would Canadian households want to hold, and what design features of a CBDC would they care about?

To better understand price-setting behaviour in the Canadian economy, the Bank of Canada's regional offices surveyed a representative sample of 170 firms between July 2002 and March 2003. The authors discuss the reasons behind the survey, the methodology used to develop the questionnaire and conduct the interviews, and summarize the results. The study also assessed several explanations for holding prices steady despite market pressures for a change. The survey findings indicate that prices in Canada are relatively flexible and have become more flexible over the past decade. Price stickiness was generally found to originate in firms' fears of antagonizing customers or disturbing the goodwill or reputation developed with them. A detailed discussion of the results includes a consideration of their implications for monetary policy.

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.

Senior Deputy Governor Carolyn Wilkins discusses the financial stability risks associated with slow growth and low interest rates, and explores strategies to mitigate them.

How do storms, floods and wildfires affect consumer prices? In the short term, natural disasters can significantly increase volatility in Canada-wide inflation. Over the long term, natural disasters influence inflation in shelter prices, especially when provincial output is already weak relative to trend.

We discuss the competition and innovation arguments for issuing a central bank digital currency (CBDC). A CBDC could be an effective competition policy tool for payments. A CBDC could also support the vibrancy of the digital economy. It could help solve market failures and foster competition and innovation in new digital payments markets.

The primary focus of this paper is to study conflict of interest in the brokerage market. Brokers face a conflict of interest when the commissions they receive from investors differ from the costs imposed by different trading venues.

These past few months have been busy for central bankers, to say the least, and the past few days are certainly no exception. While developments on Wall Street have garnered much attention, the cost of living has also been an issue for us all, whether we're buying gas at the pumps, booking an airline ticket, or just picking up a loaf of bread at the grocery store.