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We examine the optimal amount of user anonymity in a central bank digital currency in the context of bank lending. Anonymity, defined as the lender’s inability to discern an entrepreneur’s actions that enable fund diversion, influences the choice of payment instrument due to its impact on a bank’s lending decisions.

The theory that rich economic diversity of businesses and households both affects and is shaped by economy-wide fluctuations has strong implications for monetary policy. This review places these insights in a Canadian context.

I propose a novel method to identify and estimate the macroeconomic effects of forward guidance and large-scale asset purchases (LSAP) for each FOMC announcement. I find that LSAP is more important than forward guidance in influencing output and inflation. LSAP puts upward pressure on short-term yields, so it should always be used in conjunction with forward guidance.

During the recent financial crisis, one of the forces set in motion by the initial losses on subprime-mortgage loans was a significant decline in the market liquidity of assets and in the ability of financial institutions to obtain funding in wholesale markets. In this article, the authors summarize recent research that clarifies the role of liquidity in destabilizing the financial system and examine the implications of this research for the recently announced financial system reforms, including Basel III.

Ambler describes three new channels through which inflation affects economic welfare in New Keynesian models. These channels were absent from traditional analyses and may have caused researchers to underestimate the costs associated with variable inflation, even at relatively low levels of inflation. The article concludes with a preliminary assessment of the quantitative importance of the new channels and their significance for monetary policy.

We show that a large share of low-frequency (quarterly) movements in Canadian government bond yields can be explained by macroeconomic news, even though high-frequency (daily) changes are driven by other shocks. Furthermore, we show that US macro news—not domestic news— explains most of the quarterly variation in Canadian bond yields.

Can securities be settled on a blockchain and, if so, what are the gains relative to existing settlement systems? We consider a blockchain that ensures delivery versus payment by linking transfers of assets with payments and operates using a proof-of-work protocol. The main benefit of a blockchain is faster and more flexible settlement, whereas the challenge is to avoid settlement fails when participants fork the chain to get rid of trading losses.

This paper finds that debt-financed government spending multipliers vary considerably depending on the location of the debt buyer. In a sample of 33 countries, we find that government spending multipliers are larger when government purchases are financed by issuing debt to foreign investors (non-residents), compared with when government purchases are financed by issuing debt to home investors (residents).

Senior Deputy Governor Tiff Macklem discusses labour markets in Canada.

Monetary policy and financial stability are closely intertwined, and the resilience of the financial system carries weight in this relationship. This paper explores whether the financial system is more resilient as a result of the G20’s post-crisis agenda for financial regulatory reform.