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This article examines recent research on the influence of various forms of economic uncertainty on the performance of different classes of monetary policy rules: from simple rules to fully optimal monetary policy under commitment. The authors explain why uncertainty matters in the design of monetary policy rules and provide quantitative examples from the recent literature. They also present results for several policy rules in ToTEM, the Bank of Canada's main model for projection and analysis, including rules that respond to price level, rather than to inflation.

This paper shows that real effective exchange rate (REER) regressions, the standard approach for estimating the response of aggregate exports to exchange rate changes, imply biased estimates of the underlying elasticities. We provide a new aggregate regression specification that is consistent with bilateral trade flows micro-founded by the gravity equation.

The turmoil in global financial markets entered a new phase in September, moving to a more acute and broad-based loss of confidence in the context of a series of failures and near-failures of large financial institutions in the United States and Europe.

FSR Highlights - December 2008

Starting with the 2020 autumn survey, the results from a question on labour cost growth are being included in the Business Outlook Survey. This document describes the question and presents the correlations between the responses and various measures of wages and employment.

We model the asset-opacity choice of an intermediary subject to rollover risk in wholesale funding markets. Greater opacity means investors form more dispersed beliefs about an intermediary’s profitability.

The classical dichotomy predicts that all of the time-series variance in the aggregate real exchange rate is accounted for by non-traded goods in the consumer price index (CPI) basket because traded goods obey the Law of One Price. In stark contrast, Engel (1999) claimed the opposite: that traded goods accounted for all of the variance.

Contactless payment cards are a competitive alternative to cash. Using Canadian panel data from 2010 to 2017, this study investigates whether contactless credit cards are an important contributor to the decline in the transactional use of cash. 

We examine the Canadian money market fund (MMF) sector and find that it has grown rapidly, holding a large share of treasury bills and commercial paper. Unlike in some other jurisdictions where investor outflows likely amplified stresses, Canadian MMFs experienced inflows during the March 2020 market turmoil.

Inflation can affect both the dispersion of commodity-specific price levels across locations (relative price variability, RPV) and the dispersion of inflation rates (relative inflation variability, RIV). Some menu-cost models and models of consumer search suggest that the RIV-inflation relationship could differ from the RPV-inflation relationship.

Oil prices have declined sharply over the past three years. While both supply and demand factors played a role in the large oil price decline of 2014, global supply growth seems to have been the predominant force. The most important drivers were likely the surprising growth of US shale oil production, the output decisions of the Organization of the Petro-leum Exporting Countries and the weaker-than-expected global growth that followed the 2009 global financial crisis.