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This paper studies optimal discretionary monetary and fiscal policy when the lower bound on nominal interest rates is occasionally binding in a model with nominal rigidities and long-term government debt. At the lower bound it is optimal for the government to temporarily reduce debt.

In this paper, we study the impact of Canada’s adoption of protectionist trade policy in 1879 on Canadian welfare. Under the National Policy the Canadian average weighted tariff increased from 14% to 21%. The conventional view is that this was a distortionary policy that negatively affected Canadian welfare.

The size of China’s financial system raises the possibility that the liberalization of its capital account could have a large effect on the global financial system. This paper provides a counterfactual scenario analysis that estimates what the size and direction of China’s overseas portfolio investments would have been in 2015 if China had had no restrictions on these outflows.

This paper quantifies global demand, supply and uncertainty shocks and compares two major global recessions: the 2008–09 Great Recession and the COVID-19 pandemic. We use two alternate approaches to decompose economic shocks: text mining techniques on earnings calls transcripts and a structural Bayesian vector autoregression model.

Keynes wrote prophetically of the economic consequences of the Treaty of Versailles. Could the same be said of current financial reforms? Are policy-makers taking for granted the essential role performed by finance in a vain pursuit of its risk-proofing?

Consumption inequality and a low interest rate environment are two important trends in today’s economy. But the implications they may have—and how those implications interact—within different monetary policy frameworks are not well understood. We study the ranking of alternative frameworks that take these trends into account.

The combination of rising current account surpluses in Asia and a growing current account deficit in the United States has raised concerns that the resulting imbalances pose a threat to the world economy, especially if they are reversed in a disorderly manner. Some experts believe that normal market forces will resolve these imbalances over time; others argue that policy-makers should facilitate the adjustment with policies that curb domestic demand in deficit countries and stimulate it in surplus countries. Little and Lafrance provide a guide to the major issues and controversies involved in the debate.

Senior Deputy Governor Carolyn Wilkins discusses the state of the labour market, the impact of lower oil prices on Canada’s economic outlook and the importance of both for monetary policy.

We use relative value to measure limits to arbitrage in fixed-income markets. Relative value captures apparent deviations from no-arbitrage relationships. It is simple, intuitive and can be computed model-free for any bond.

This report provides a detailed technical description of the updated MacroFinancial Risk Assessment Framework (MFRAF), which replaces the version described in Gauthier, Souissi and Liu (2014) as the Bank of Canada’s stress-testing model for banks with a focus on domestic systemically important banks (D-SIBs).