Search

In light of the financial crisis and its aftermath, several economists have argued that inflation-targeting central banks should reconsider the level of their inflation targets. While the appropriate level for the inflation target remains an open question, it’s important to note that any transition to a new target would entail certain costs.

This section of the Financial System Review examines the recent performance of the Canadian financial system and the factors, both domestic and international, that are influencing it.

This paper studies how the credit expansion policy pursued by the Chinese government in an effort to stimulate its economy in the post-crisis period affects bank–firm loan contracts and the macroeconomy. We build a structural model with financial frictions in which the optimal loan contract reflects the trade-off between leverage and the probability of default.

We develop a dynamic model to capture key features of decentralized finance lending. We identify a price-liquidity feedback: the market outcome in any given period depends on agents' expectations about lending activities in future periods, with higher future price expectations leading to more lending and higher prices in that period.

This paper evaluates the effectiveness of macroprudential policies when regulations are uneven across mortgage lender types. We look at credit tightening that results from macroprudential regulations and examine how much of it is counteracted by credit shifting to unregulated lenders. We also study the impact of monetary policy tightening when some lenders are unregulated.

How do Canadians pay their bills? 2019 survey data collected from over 4,000 Canadian consumers show how people’s bill payment choices vary with consumer characteristics and types of bills. The data also reveal that many consumers feel limited in their choices, which suggests that preferences of billers might play an important role as well.

We demonstrate the usefulness of payment systems data and machine learning models for macroeconomic predictions and provide a set of econometric tools to overcome associated challenges.

The neutral rate serves as a benchmark for measuring monetary stimulus and provides a medium- to long-run anchor for the real policy rate. Global neutral rate estimates have been falling over the past few decades. Factors such as population aging, high corporate savings, and low trend productivity growth are likely to continue supporting a low global neutral rate. These global factors as well as domestic factors are exerting downward pres-sure on the Canadian real neutral rate, which is estimated to be between 0.5 to 1.5 per cent. This low neutral rate has important implications for monetary policy and financial stability.

The impact of COVID-19 on Canadian households’ debt and unplanned savings varies by household income. Low-income and high-income households accrued unplanned savings, while middle-income households tended to accumulate more debt.