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We study the labour market and welfare effects of expanding unemployment insurance benefits and introducing payroll subsidies during the COVID-19 pandemic. We find that both policies are complementary and are beneficial to different types of workers. Payroll subsidies preserve the employment of workers in highly productive jobs, while unemployment insurance replaces lost income for workers who experience inevitable job loss.

We study the transmission and third-country effects of international sanctions. A sanctioned country’s losses are mitigated, and the sanctioning country’s losses amplified, if a third country does not join the sanctions, but the third country benefits from not joining.

Markets for securitized assets were characterized by high liquidity prior to the recent financial crisis and by a sudden market dry-up at the onset of the crisis. A general equilibrium model with heterogeneous investment opportunities and information frictions predicts that, in boom periods or mild recessions, the degree of adverse selection in resale markets for securitized assets is limited because of the reputation-based guarantees by asset originators.

This note presents the updated estimates of potential output growth for the global economy through 2021. Global potential output is expected to grow by 3.3 per cent per year over the projection horizon.

In a simple two-sector New Keynesian model, sticky prices generate a counterfactual negative comovement between the output of durable and nondurable goods following a monetary policy shock. We show that heterogeneous factor markets allow any combination of strictly positive price stickiness to generate positive output comovement.

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Moroccan Coin Moulds

This bronze mould from Morocco is part of the National Currency Collection, Bank of Canada.
Photography by Gord Carter, Ottawa.

This paper proposes a novel methodology for identifying episodes of strong capital flows based on a regime-switching model. In comparison with the existing literature, a key advantage of our methodology is to estimate capital flow regimes without the need for context- and sample-specific assumptions.

Deputy Governor Lawrence Schembri discusses the importance of potential output to monetary policy, as well as policy challenges and opportunities in a world of low potential output growth.

The neutral nominal policy rate serves as a benchmark for assessing the degree of monetary stimulus and provides a medium- to long-run anchor for the policy rate. Since quantitative measures of the neutral rate are subject to considerable uncertainty, Bank staff rely on four different approaches to estimate the Canadian neutral rate.

This article examines the developments in the monetary aggregates over the course of 1997 and their implications for future economic activity. The narrow aggregate, M1, grew rapidly in the first half of 1997 but slowed somewhat during the second half of the year. Much of the strong growth in this aggregate over the last several years has been associated with a higher demand for transactions balances as interest rates declined and economic activity revived. There were some special factors at play, however, that are discussed in the article. The Bank expects some slowing in M1 growth through 1998 and into 1999. This would be consistent with a trend of inflation within the inflation-control target range of 1 to 3 per cent over the next couple of years. Growth in the broad aggregate, M2+, continued to be distorted by the shift of savings out of fixed-term deposits into mutual funds. A broader aggregate that includes M2+, CSBs, and all mutual funds and thus provides a better estimate of broad money growth, grew at a moderate pace during 1997. The recent behaviour of the broad monetary aggregates continues to suggest that inflation will remain low in coming years.