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This article reviews arguments in the literature for and against price-level targeting, focusing on its costs and benefits compared with inflation targeting. Benefits of price-level targeting include the effect on forward-looking inflation expectations; the ability to substitute for commitment by a central bank to its future policies; lessening forecast errors; better economic performance in response to real shocks because of lower wage indexation; and a reduction in the problem of the zero lower bound on nominal interest rates.

This note provides an update on Bank of Canada staff’s assessment of the Canadian neutral rate. The neutral rate is the policy rate needed to keep output at its potential level and inflation at target once the effects of any cyclical shocks have dissipated. This medium- to long-run concept serves as a benchmark for gauging the degree of monetary stimulus provided by a given policy setting.

Bank of Canada Governor Tiff Macklem discusses how artificial intelligence could impact the economy, and outlines some of the implications for monetary policy.

There has been tremendous discussion of Bitcoin, digital currencies and FinTech. However, there is limited empirical evidence of Bitcoin’s adoption and usage. We propose a methodology to collect a nationally representative sample using the Bitcoin Omnibus Survey (BTCOS) to track the ubiquity and usage of Bitcoin in Canada.

This note reviews the emerging evidence on AI’s labour-market and productivity effects, highlighting early task-level impacts, sizable micro level productivity gains, and the macroeconomic challenges these pose for monetary policy during the transition.

We quantitively assess the risks of a wage-price spiral occurring in Canada over history. We find the risk of a wage-price spiral increases when the inflation expectations become unanchored and the credibility of central banks declines.

This paper develops a theoretical framework to infer the nature of fixed costs from the relationship between entry patterns in international markets and destination market size. If fixed costs are at the firm level, firms take advantage of an intrafirm spillover by expanding firm-level product range (scope).

Financing costs are important for both firms and the economy, affecting investment decisions and, ultimately, economic growth. Despite concern among policy-makers that the cost of equity financing may be higher in Canada than in the United States, empirical evidence supporting this view is mixed. Yet Canadian firms may not undertake as many projects that could potentially enhance growth if the cost of equity financing in Canada is relatively high. The article summarizes research by Jonathan Witmer and Lorie Zorn on the influences on the cost of equity in Canada and the United States, using an updated methodology that controls for firm characteristics and aggregate-level factors. In their sample, the cost of equity was 30–50 basis points higher in Canada over 1988 to 2006 but appears to have dropped in the post-1997 period. The results have policy implications related to such factors as firm size, disclosure, and securities regulation and enforcement.

This paper develops a model of an economy where bank credit supports both productive investment and individual consumption smoothing in the face of idiosyncratic income risk. Bank credit is constrained by bank equity capital.