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For central banks, conducting policy in an environment of uncertainty is a daily fact of life. This uncertainty can take many forms, ranging from incomplete knowledge of the correct economic model and data to future economic and geopolitical events whose precise magnitudes and effects cannot be known with certainty.

Coholder households simultaneously carry high-cost credit card debt and low-yield cash. We study the implications of this behavior for fiscal and monetary policy, finding that coholder households have smaller consumption responses in the short run but larger responses in the long run.

This report provides a detailed technical description of a stress test model for investment funds called Ceto.

We document countercyclical corporate saving behavior with the degree of countercyclicality varying nonmonotonically with firm size. We then develop a dynamic stochastic general equilibrium model with heterogeneous firms to explain the pattern and study its implications for business cycles.

Commodity prices are once again making headlines. Some commodity prices, such as those for copper and cattle, have reached record highs; others are rising quickly and approaching previous peaks.

This paper studies how the outcome of Bayesian persuasion depends on a sender’s information. I study a game in which, prior to the sender’s information disclosure, the designer can restrict the most informative signal that the sender can generate.

In recent years, the Bank has put renewed emphasis on analyzing monetary variables and on developing models that incorporate money as an active part of the transmission mechanism. In this article, Dinah Maclean describes how the monetary aggregates are used in the formulation of monetary policy analysis at the Bank, outlining the key tools and models used. The most important money-based model currently in use is the M1-VECM. In this model, deviations in the money supply from the long-term demand for money cause changes in inflation. The author briefly describes the "active-money" paradigm underlying this model and explains the key equations within it. Other simpler empirical models are also outlined, including single-equation indicator models for output based on the narrow aggregates, a neural network, and a model based on the broader aggregate M2++. A detailed technical annex provides details on model equations and coefficient values.

We propose a macroeconomic model with a nonlinear Phillips curve that has a flat slope when inflationary pressures are subdued and steepens when inflationary pressures are elevated. Our model can generate more sizable inflation surges due to cost-push and demand shocks than a standard linearized model when inflation is high.

The existence of downward nominal wage rigidity (DNWR) has often been used to justify a positive inflation target. It is traditionally assumed that positive inflation could “grease the wheels” of the labour market by putting downward pressure on real wages, easing labour market adjustments during a recession.

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.