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As the Government of Canada’s fiscal agent, the Bank of Canada provides strategic policy advice on the management of the government’s debt, in addition to being responsible for conducting debt-management operations. In this article, the authors review the evolution of the debt strategy over the past 20 years and outline the complex process of developing a sound strategy that balances various cost and risk considerations. This includes an examination of the tools and practices used to develop the new medium-term debt-management strategy, such as the modelling approach involved, market consultations and various debt-management metrics.

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.

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.

We review the nascent but fast-growing literature on central bank digital currencies (CBDCs), focusing on their potential impacts on private banks. We evaluate these impacts in three areas of traditional banking: payments, lending and liquidity and maturity transformation. We also take a broader look at CBDCs and highlight two promising directions for future research.

The authors use the Financial Stress Index created by the International Monetary Fund to predict the likelihood of financial stress events for five developed countries: Canada, France, Germany, the United Kingdom and the United States.

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.

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

The third strategy employed by the Bank when dealing with uncertainty is the consideration of appropriate simple reaction functions or "rules" for the setting of the policy interest rate. Since John Taylor's presentation of his much-discussed rule, research on simple policy rules has exploded. Simple rules have several advantages. In particular, they are easy to construct and communicate and are believed by some to be robust, in the sense of generating good results in a variety of economic models. This article provides an overview of the recent research regarding the usefulness and robustness of simple monetary policy rules, particularly in models of the Canadian economy. It also describes and explains the role of simple rules in the conduct of monetary policy in Canada.

The purpose of this paper is to make a quantitative contribution to the inflation versus price level targeting debate. It considers a policy-maker that can set policy either through an inflation targeting rule or a price level targeting rule to minimize a quadratic loss function using the actual projection model of the Bank of Canada (ToTEM).