Search

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.

When lenders cannot directly identify behavioural and rational borrowers, they use type scoring to track the likelihood of a borrower’s type. This leads to the partial pooling of borrowers, which results in rational borrowers subsidizing borrowing costs for behavioural borrowers. This, in turn, reduces the effectiveness of regulatory policies that target mistakes by behavioural borrowers.

We investigate the extent to which excess supply (demand) in labour markets contributes to a lower (higher) growth rate of average nominal wages for workers. Using panel methods on data from 10 advanced economies for 1992–2018, we produce reduced-form estimates of a wage Phillips curve specification that is consistent with a New Keynesian framework.

Cover page

Promissory Note, 1712

The note measures 28 cm x 16 cm and forms part of the National Currency Collection, Bank of Canada.

Photography by Gord Carter, Ottawa

Based on recent research, this article discusses three ways that oil-futures prices can improve our understanding of current conditions and future prospects in the global market for crude oil. First, the response of the oil-futures curve can be used to identify the persistence of oil-price shocks and to obtain an indicator of the rate at which they will diminish. Second, the spread between the current futures price and the spot price of oil can be interpreted as an indicator of the precautionary demand for oil. Third, because oil-futures prices are volatile, forecasts of the future spot price of oil using futures prices should be supplemented with other information to improve their accuracy.

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.

The Financial System Review is one vehicle that the Bank of Canada uses to contribute to the strength of the Canadian financial system. The Developments and Trends section of the Review aims to provide analysis and discussion of current developments and trends in the Canadian financial sector.

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 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.

Could Canadian banks continue to meet their regulatory liquidity requirements after the introduction of a cash-like retail central bank digital currency (CBDC)? We conduct a hypothetical exercise to estimate how a CBDC could affect bank liquidity by increasing the run-off rates of transactional retail deposits under four increasingly severe scenarios.