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Canada plans to adopt a retail payment system to allow Canadians to pay in real time (or near real time) 24 hours a day, 7 days a week. However, the traditional model for setting the overnight interest rate does not operate 24/7.

Using data from a 2004 survey of the Canadian public, the authors study the role of convenience and risk in consumers' use of cash relative to debit and credit cards. The authors find that consumers who perceive debit cards and credit cards to be more convenient and less risky than cash use them more frequently.

Inflation targeting (IT) had originally been introduced as a device to bring inflation down and stabilize it at low levels. Given the current environment of persistently weak inflation in many advanced economies, IT central banks must now bring inflation up to target.

In a small open economy fluctuations in the real exchange rate can affect plant turnover, and thus aggregate productivity, by altering the makeup of plants that populate the market. An appreciation of the local currency increases the level of competition in the domestic market as import competition intensifies and export opportunities shrink, forcing less productive plants from the market and compelling new entrants to be more competitive than they otherwise would have been.

The objective of this article is to improve our understanding of counterfeiting and its policy implications by reviewing research in this area. There has been almost no empirical work on counterfeiting because of the limited availability of counterfeiting data and related statistics. The authors therefore focus on theoretical studies that directly model the behaviour of the relevant economic agents. They first establish some stylized facts about counterfeiting to provide a general understanding of the problem. They then briefly review several models of counterfeiting and summarize their relevant insights, focusing on the implications of the findings for the incentive to counterfeit, social welfare and anti-counterfeiting policies. The authors find that the policy implications of these studies support the Bank’s comprehensive anti-counterfeiting strategy.

This paper uses Tobit models and data for union contracts to examine the extent of downward nominal-wage rigidity in Canada. To be consistent with important stylized facts, the models allow the variance of the notional wage-change distribution to be time-varying and test for menu-cost effects.

During the recent financial crisis, one of the forces set in motion by the initial losses on subprime-mortgage loans was a significant decline in the market liquidity of assets and in the ability of financial institutions to obtain funding in wholesale markets. In this article, the authors summarize recent research that clarifies the role of liquidity in destabilizing the financial system and examine the implications of this research for the recently announced financial system reforms, including Basel III.

From 1980 until 2007, U.S. average hours worked increased by thirteen percent, due to a large increase in female hours. At the same time, the U.S. labor wedge, measured as the discrepancy between a representative household's marginal rate of substitution between consumption and leisure and the marginal product of labor, declined substantially.

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Promissory Note, 1712

The note measures 28 cm x 16 cm and forms part of the National Currency Collection, Bank of Canada.

Photography by Gord Carter, Ottawa