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In its role as fiscal agent to the government, the Bank of Canada provides analysis and advice on decisions about the government's domestic debt portfolio. Debt-management decisions depend on assumptions about future interest rates, macroeconomic outcomes, and fiscal policy, yet when a debt-strategy decision is taken, none of these factors can be known with certainty. Moreover, the government has various financing options (i.e., treasury bills, nominal bonds, and inflation-linked bonds) to meet its objectives of minimizing debt-service charges while simultaneously ensuring a prudent risk profile and well-functioning government securities markets. Bank of Canada staff have therefore developed a mathematical model to assist in the decision-making process. This article describes the key aspects of the debt manager's challenge and the principal assumptions incorporated in the debt-strategy model, illustrated with specific results.

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.

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Chargex

The artefacts on the cover are part of the National Currency Collection of the Bank of Canada.

Photography by Gord Carter

The recent crisis has underlined the importance of sound bank liquidity management. In response, regulators are devising new liquidity standards with the aim of making the financial system more stable and resilient. In this paper, the authors analyse the impact of liquid asset holdings on bank profitability for a sample of large U.S. and Canadian banks.

It is commonly observed that central banks respond gradually to economic shocks, moving the interest rate in small discrete steps in the same direction over an extended period of time. This paper examines the empirical evidence regarding central banks' smoothing of interest rates, paying particular attention to the case of Canada.

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.

The authors examine the impact of multinational enterprises (MNEs) on exchange rate pass-through in an environment where an MNE engages in Cournot (quantity) competition with domestic and foreign rivals.

The authors describe the principal results obtained from a new method applied to the estimation of potential U.S. GDP.

This paper documents the rate at which labour flows between industries and between firms within industries using the most recent data available. It examines the determinants of these flows and their relationship with the productivity growth.

The author uses panel data to assess the sensitivity of investment to cash flow in non-financial firms, taking into account the role their financial health plays in investment decisions.