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The financial crisis of 2007-09 and the subsequent extended period of historically low real interest rates have revived the question of whether economic agents are willing to take on more risk when interest rates remain low for a prolonged time period. This increased appetite for risk, which causes economic agents to search for investment assets and strategies that generate higher investment returns, has been called the risk-taking channel of monetary policy. Recent academic research on banks suggests that lending policies in times of low interest rates can be consistent with the existence of a risk-taking channel of monetary policy in Europe, South America, the United States and Canada. Specifically, studies find that the terms of loans to risky borrowers become less stringent in periods of low interest rates. This risk-taking channel may amplify the effects of traditional transmission mechanisms, resulting in the creation of excessive credit.

The theory that rich economic diversity of businesses and households both affects and is shaped by economy-wide fluctuations has strong implications for monetary policy. This review places these insights in a Canadian context.

In this study we statistically quantify the reactions of Canadian and U.S. interest rates to macroeconomic announcements released in Canada and in the United States. We find that Canadian interest rates react very little to Canadian macroeconomic news and are significantly affected by U.S. macroeconomic news, which indicates that international influences on the Canadian fixed-income markets are important.

This article examines another strategy in the Bank's approach to dealing with an uncertain world: the use of carefully articulated models to produce economic forecasts and to examine the implications of the various risks to those forecasts. Economic models are deliberate simplifications of a complex world that allow economists to make predictions that are reasonably accurate and that can be easily understood and communicated. By using several models, based on competing paradigms, the Bank minimizes policy errors that could result from relying on one view of the world and one philosophy of model design. The authors review some of the models currently used at the Bank, as well as the role of judgment in the projection process.

This paper contributes to the debate on fiscal multipliers, in the context of a structural model. I estimate a micro-founded dynamic stochastic general equilibrium model, that features a rich fiscal policy block and a transmission mechanism for government spending shocks, using Bayesian techniques for US data.

The objective of this paper is twofold. First, we assess whether financial education might be a suitable tool to promote the financial inclusion opportunities that big techs provide. Second, we study how this potential financial inclusion could impact financial stability.

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Canada's First Coinage

Photography by Gord Carter, Ottawa.

We are experiencing a commodity super cycle. Throughout the current boom, the scale of price increases has been higher, and the range of affected commodities broader, than in previous upturns. Since 2002, grain and oilseed prices have more than doubled, base metals prices have tripled, and oil prices have quadrupled.

The authors revisit the relationship between energy prices and the Canadian dollar in the Amano and van Norden (1995) equation, which shows a negative relationship such that higher real energy prices lead to a depreciation of the Canadian dollar.