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This note uses industry data and a unique dataset of small and medium-sized merchants to provide insights into the acquirer-merchant market in Canada.

Many emerging-market economies (EMEs) have significantly improved their macroeconomic fundamentals and undergone structural reforms since the Asian crisis. These developments have enhanced the composition of capital flows to EMEs through an improved debt structure, a larger share of capital flows as foreign direct investment, and greater access to international debt markets for corporations in EMEs. Structural changes in the global financial landscape have also increased capital flows, bringing economic and financial benefits to EMEs. During the recent financial crisis, however, the opening up of capital accounts and increased financial and trade linkages left many countries vulnerable to external disruptions. Countries with sound fundamentals have weathered the crisis relatively well. Policy-makers in EMEs need to implement policies that support capital flows and ensure that controls imposed to deal with detrimental outflows during periods of stress or rapid inflows are only temporary.

We assess the response of Government of Canada bond yields to the Bank of Canada’s initial announcement of the Government Bond Purchase Program (GBPP) as well as to the Bank’s later GBPP purchase operations.

Financial market expectations regarding future changes in the target for the overnight rate of interest are an important source of information for the Bank of Canada. Financial markets are the mechanism through which the policy rate affects other financial variables, such as longer-term interest rates, the exchange rate, and other asset prices. An accurate measure of their expectations can therefore help policy-makers assess the potential impact of contemplated changes. Johnson focuses on the expectations hypothesis, which measures expectations of future levels of the target overnight rate as implied by current money market yields. Although expectations can be derived from the current yield on any short-term fixed-income asset, some assets have proven to be more accurate predictors than others. The implementation of a policy of fixed-announcements dates has coincided with the increased predictive power of these short-term assets. As a result of this improvement, a relatively simple model of the yield curve can now provide an accurate measure of financial market expectations.

This note presents PULSE, a new measure of underlying inflation in Canada based on a dynamic factor model estimated on disaggregated inflation data. PULSE captures the persistent component of inflation and decomposes it into broad-based and sector-specific inflationary pressures.

Many reports and analyses interpret the release of new economic data based on the headline surprise—for instance, total inflation, real GDP growth and the unemployment rate. However, we find that headline news alone cannot adequately explain the responses of market prices to new information. Rather, market prices react more strongly, on average, to non-headline news such as the composition of GDP growth, quality of jobs created and revisions to past data. Thus, tracking the impact of non-headline information released on the news day is crucial in analyzing how markets interpret and react to new economic data.

How do banks adjust their loan rate markup in response to macroeconomic shocks?

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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 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.