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Raising liquidity when funding is stressed creates pressure on the financial market. Liquidating large quantities of assets depresses their prices and may amplify funding shocks. How do banks weathering a funding crisis contribute to contagion risk?

I provide evidence that portfolio equity inflows can have expansionary effects on GDP and inflation if not offset by monetary policy. I use a shift-share instrument to estimate equity inflows based on plausibly exogenous timing of inflows into mutual funds with heterogeneous country portfolios.

This note studies a form of a utility function of consumption with habit and leisure that (a) is compatible with long-run balanced growth, (b) hits a steady-state observed target for hours worked and (c) is consistent with micro-econometric evidence for the inter-temporal elasticity of substitution and the Frisch elasticity of labor supply.

This paper provides a non-technical introduction to monetary policy - what it is, how it works, and why it matters. It discusses inflation volatility and why this is damaging to the economy, as well as why increased stability of output growth is desirable.

The short-run Phillips curve describes a positive short-run relationship between the level of economic activity and inflation. When the level of demand in the economy as a whole runs ahead of the level of output that the economy can supply in the short run, price pressures increase and inflation rises. This article reviews the origins of the short-run Phillips curve with particular emphasis on the long-standing idea that the shape of this curve may be non-linear, with inflation becoming more sensitive to changes in output when the cycle of economic activity is high than when it is low. This type of non-linearity in the short-run Phillips curve, which is typically motivated by the effects of capacity constraints that limit the ability of the economy to expand in the short run, has recently attracted renewed attention. The article surveys recent research that finds some evidence of this type of non-linearity in the Phillips curve in Canada and considers the potential implications for monetary policy.

The U.S. recovery from the Great Recession has been slow relative to other postwar-era recoveries in the United States. Encouraged by loose lending standards in the pre-crisis period, U.S. households took on unsustainable amounts of debt, making them vulnerable to adverse shocks. Subsequently, a considerable drop in asset prices forced households to repair their balance sheets. While there has been progress in household deleveraging, the government sector now needs to delever, which will restrain growth over the next few years.

Dynamic general-equilibrium models (DGEMs) are being increasingly used in macroeconomic research. In this article, the author describes the main features of these models and outlines their contribution to economic research performed at the Bank of Canada. He notes that the basic principle of DGEMs is that the modelling of economic activity, even on a scale as large as the economy of a country, should start with a series of microeconomic problems (at the scale of individuals), which, once resolved, are aggregated to represent the macroeconomic reality described by the model.

This article begins with a brief examination of the Canadian mortgage market, focusing on the market’s evolution following changes to the Bank Act in 1992, which allowed chartered banks to enter the trust business, and the subsequent entrance of virtual banks and mortgage brokers.

This paper examines the cross-border spillovers from major economies’ quantitative easing (QE) policies to their trading partners. We concentrate on spillovers from the US to Canada during the zero lower bound period when QE policies were actively used.