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How do households respond when they receive unanticipated income, such as an inheritance or government stimulus cheque? This paper studies these windfall income shocks through a model of household behaviour that generates a realistic consumption response for households along the entire distribution of wealth.

Globally, private credit lending has expanded rapidly and become increasingly connected to the broader financial system. Complex structures, limited transparency and the fact that private credit is untested in a downturn make it difficult to predict how the sector might amplify shocks.

A highly credible monetary policy helps to reduce the degree of uncertainty that can surround the objectives of such policy. When the monetary policy pursued by the central bank is credible, the expectations of the public are focused on a target. If the public believes that the Bank will act to bring inflation back to the target, then its expectations will not react so strongly to fluctuating price trends. In turn, fluctuations in inflation, interest rates, output, and employment should be less pronounced than in the absence of such credibility. The adoption of inflation control as a monetary policy objective by some countries has led central banks to take steps to enhance the credibility of monetary policy. For the Bank of Canada, these include * the publication of our Monetary Policy Report each May and November, with formal updates each February and August * the initiation of communications activities across the country * the use of the overnight interest rate as a short-term operating target * the issuing of a press release each time the Bank changes its key rates To date, most of the studies on this topic have concluded that success in keeping inflation within a target range has helped to increase the credibility of Canadian monetary policy. These surveys suggest that expected inflation, which stood at about 5 per cent in 1990, declined to around 2 per cent by 1999 (Chart 1, page 15). Indeed, according to these surveys, for the entire period during which the Bank has had a target range for inflation, expected inflation rates have remained within that range. Inflation expectations have also reacted very little to changes in the total CPI, suggesting that the targets have helped to focus expectations on the target rate and have thus enhanced the credibility of monetary policy (Chart 2, page 16). One particular study shows that the life of collective wage agreements in Canada has been increasing and that the number of such agreements containing cost-of-living adjustment (COLA) clauses has steadily declined. The authors of this study suggest that this may reflect the greater credibility of Canadian monetary policy (Table 1, page 16). The proportion of mortgages with five-year terms is now higher than it was in the mid-1980s, and many financial institutions have been offering 7- to 10-year mortgages. This also suggests that inflation targets have gained credibility.

Changes in survey mode (e.g., online, offline) may influence the values of survey responses, and may be particularly problematic when comparing repeated cross-sectional surveys.

Canada plans to adopt a retail payment system to allow Canadians to pay in real time (or near real time) 24 hours a day, 7 days a week. However, the traditional model for setting the overnight interest rate does not operate 24/7.

What are the main drivers behind the monetary policy reaction function of the People’s Bank of China?

We explore quantitative and qualitative information about Canadians who face barriers to making digital payments. We also consider the implications of ongoing digitalization for modern financial inclusion and a potential central bank digital currency.

We measure systemic risk in the network of financial market infrastructures (FMIs) as the probability that two or more FMIs have a large credit risk exposure to the same FMI participant.

Senior Deputy Governor Carolyn A. Wilkins talks about how to navigate slow growth and discusses the types of policies that would help secure long-term prosperity.

We assess both the US and Canadian nominal neutral rates to be in the range of 2.25% to 3.25%, somewhat higher than the range of 2.0% to 3.0% in 2023. The assessed range is back to the level it was at in April 2019.