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Trade liberalizations increase the sales and input purchases of productive firms relative to their less productive domestic competitors. This reallocation affects firms’ market power in their product and input markets. I quantify how the labour market power of employers affects the distribution and size of the gains from trade.

Central banks play a pivotal role in well-functioning payments systems by providing liquidity via collateralized lending. This article discusses the role of collateral and haircut policy in central bank lending, as well as the distinguishing features of the central bank’s policy relative to private sector practices. It presents a model that explicitly incorporates the unique role of central banks in the payments system and argues that central banks must consider how their haircut policies affect the relative price and liquidity of assets, the market’s asset allocation, and the likelihood of participants to default. Furthermore, under extraordinary circumstances, there is a rationale for the central bank to temporarily reduce haircuts or broaden the list of eligible collateral to mitigate the shortage of liquidity in the market.

This issue features four articles that present research and analysis by Bank staff. The first focuses on reforming the international monetary system; the second on the role of collateral and haircut policy in central bank lending; and the third on the extraction of information from the Business Outlook Survey using principal-component analysis. The fourth reviews studies that model the counterfeiting of bank notes.

This paper summarizes the literature on the performance of various extended monetary policy tools when conventional policy rates are constrained by the effective lower bound. We highlight issues that may arise when these tools are used by central banks of small open economies.

We create a theoretical model of central bank asset purchases. The model helps explain how, in a crisis, these purchases ease pressures on investment dealers.

Using U.S. county-level data from 1990 to 2010, we study the causal impact of immigration on the provision of local public goods. We uncover substantial heterogeneity across immigrants with different skills and immigrants of different generations, which leads to unequal fiscal effects across U.S. counties.

We study the impact government expenditure has on inflation. We find that changes in government expenditure account for a substantial portion of inflation variations. We also find that inflation and inflation expectations respond negatively to fiscal spending shocks, reaffirming the supply-side channel through which inflation responds to fiscal expansions.

This issue includes analysis of the unconventional monetary policies recently implemented by central banks, and also presents Bank research in two areas - the migration of labour between economic regions in Canada, and the asset-allocation and funding decisions for Canada’s foreign exchange reserves.

This research develops a model in which the economy is directly influenced by how pessimistic or optimistic economic agents are about the future. The agents may hold different views and update them as new economic data become available.

Can regulators keep pace with banks’ creative regulatory workarounds? Our analysis unpacks the trade-offs between fixed regulations and crisis-triggered rules, showing that the latter are especially prone to circumvention—and can trigger larger, costlier bailouts.