Rapid changes in the macroeconomic environment, in financial sector innovation and in the market landscape all underscore the need for central banks to regularly interact with a diverse set of stakeholders. Obtaining real-time perspectives is a key component of market intelligence. Central banks gather this information, which is primarily qualitative, through direct engagement with business leaders and market participants (see Box 1). In recent years, many central banks have introduced market participant surveys to gather more structured feedback on a defined set of topics. These surveys complement macroeconomic and market data and model-based insights, which can all be imperfect and come with lags.1
The most recent addition to the Bank of Canada’s set of stakeholder surveys2 is the Market Participants Survey (MPS). The MPS engages a diverse set of participants in financial markets and gathers their views on key macroeconomic and financial variables as well as monetary policy. Bank staff conduct the MPS every quarter to gather timely information in a structured and systematic way and to enhance their monetary policy analysis and advice to Governing Council. MPS results help staff understand how market participants form their expectations and may also, over time, provide useful insights about the effectiveness of the Bank’s communication efforts and its monetary policy.
The pilot phase of the MPS began in 2019. The survey will soon be a permanent part of the Bank’s tool kit. The Bank will publish results regularly, beginning shortly after publication of the January 2023 Monetary Policy Report.
This note describes the MPS’s objectives and main features, its process and design, and how staff use the results.
Box 1: Market intelligence at the Bank of Canada
Box 1: Market intelligence at the Bank of Canada
Why does the Bank of Canada conduct market intelligence?
Market intelligence is a critical component of the Bank’s analysis. It helps staff understand how households, firms and financial markets form their expectations about macroeconomic developments and monetary policy. This is particularly useful in periods of high uncertainty. It can also provide new or forward-looking perspectives and either reinforce or challenge what is seen in economic data or what is implied by market prices. Market intelligence activities with a diverse set of stakeholders help shape policies and support the Bank’s core functions.3
Financial market intelligence framework
Intelligence gathering from financial markets can take many forms. The Bank has a decentralized framework with three main components:
- Market monitoring—Bank staff interact daily with domestic and foreign counterparties across a range of money, fixed-income and foreign exchange markets. These counterparties provide timely information on market conditions, funding and liquidity.
- Market liaison—A traditional form of intelligence gathering is through liaison activities, which complement market monitoring by adding the perspectives of various types of market participants that are less focused on daily market operations or movements. Efforts include gathering qualitative information from direct interactions with market participants (e.g., online and telephone conversations as well as in-person meetings with individual participants). Staff in the Bank’s regional offices in Montréal and Toronto perform most of the market liaison activities, given their proximity to Canada’s main financial market centres. Advisors to the Governor located in New York and Toronto also connect with the broader financial community.
- Structured market intelligence—Market intelligence activities are also conducted through structured surveys and consultations as well as more formal public-private committees and contact groups. Senior-level representatives of firms that are active in Canadian and global capital markets meet to discuss developments in financial markets. This includes, in particular, the Canadian Foreign Exchange Committee and the Canadian Fixed-Income Forum, which the Bank chairs and co-chairs, respectively.4
Objectives and main features
The Bank routinely incorporates the analysis of financial market conditions into its monetary policy decision-making process. Market monitoring is an important component of this analysis and includes both private sector forecasts and market pricing. But these data come with some caveats:
- Surveys of professional forecasters are readily available but may be challenging to interpret because different models underlie the results. In addition, often these forecasts are available only close to the fixed announcement dates of the Bank’s monetary policy decisions and are therefore less useful for the analysis that staff complete beforehand.
- Most market pricing data provide point estimates only, which represent the mean of expectations. In addition, smaller countries like Canada are influenced by global factors and have some market segments that are less liquid, so changes in market pricing need to be interpreted with caution. This is particularly true during periods of uncertainty.
Given these challenges, market liaison activities are a good complement to market monitoring, providing additional context and forward-looking views and even challenging what the data appear to show.5 But much of the captured information is qualitative in nature, so it can be subject to interpretation and bias (e.g., participants “talking their book”—promoting their own views) or be unbalanced, reflecting only a particular subset of views.
To bridge the gap between market monitoring data and market liaison activities, Bank staff decided to follow the approach of other Bank surveys and develop a regular, structured method to assess market expectations. The MPS enables staff to routinely collect standardized information from a representative and diverse sample of financial market participants. This way Bank staff can minimize bias in the data and gradually establish a time series suited for long-term quantitative analyses. As well, open-ended questions allow respondents to provide further qualitative information in their responses. Together, the two response types serve as a basis for follow-up interviews with participants. These interviews allow Bank staff to clarify (if necessary) some of the responses and, more importantly, to obtain additional insight into the factors underlying participants’ macroeconomic and monetary policy forecasts and related risks. When combined, the quantitative and qualitative information provides a more complete assessment of expectations.
Since the MPS’s pilot phase in 2019, the:
- survey sample has expanded
- questionnaire has been refined and adapted to the changing environment
- data infrastructure and governance processes have improved
Process and design
The MPS has two components—a questionnaire sent to all respondents and follow-up interviews conducted with a subgroup of respondents (see Box 2 for more details). The questionnaire asks respondents for their views on the macroeconomic outlook and the expected path of monetary policy for both Canada and the United States, as well as their expectations for key financial variables. Although some information about market participants’ expectations can be derived from market prices, private sector forecasts and other surveys, the MPS is designed to offer additional benefits, such as:
- The MPS cycle is aligned with that of the Bank’s internal cycle for the Monetary Policy Report. This allows the MPS results to be included in staff analysis and advice to Governing Council for its monetary policy decisions (see Figure 1).
- More complete information
- The MPS allows for the exploration of additional market or macroeconomic variables relative to private sector forecasts. This provides data points that cannot be derived from market pricing and enables the inclusion of additional time horizons in survey questions.
- The MPS also derives a fuller set of estimates—including means, medians and, in some cases, full probability distributions of responses.
- The MPS uses a more representative sample than other surveys, including both sell-side (banks, securities dealers) and buy-side (pension funds, insurance companies, asset managers) participants.
- Regular touch points with a broad set of market participants
- The follow-up interviews are a valuable way to validate and help contextualize questionnaire responses. Conversations with panelists are crucial, particularly when the economic environment is changing rapidly.
- Flexibility and continuous improvement as needed
- While the MPS questions are intended to remain stable over time, Bank staff have the flexibility to add special questions if necessary.
See Box 3 for a comparison of the MPS with other central bank surveys.
Figure 1: The quarterly process for the Market Participants Survey
Figure 1: The quarterly process for the Market Participants Survey
* The first publication of MPS results is scheduled approximately two weeks after the release of the January 2023 MPR.
Note: MPR is the Monetary Policy Report.
Box 2: The Market Participants Survey questionnaire and interviews
Box 2: The Market Participants Survey questionnaire and interviews
The questionnaire has three main sections:
- Economic scenarios
- Monetary policy expectations
- Financial assets
This section captures participants’ expectations for growth and inflation for Canada and the United States. It includes a probability distribution of these variables in Canada, the most likely upside and downside risks to the growth of Canadian gross domestic product, the output gap and when respondents think it will close, and the probability of a recession for different time horizons.
This part of the questionnaire asks about future Canadian and US monetary policy decisions, including the anticipated path of the policy rate, respondents’ uncertainty about the path, and the level and timing of the peak rate. It also asks about near-term adjustments to the Bank’s balance sheet. Other questions touch on estimates of the neutral rate.
The third area explores expectations for financial assets, including interest rates in Canada and the United States at different points on the yield curve, the Canadian dollar and oil prices.
Respondents are asked to indicate their expectations for the next two years. This aligns with the Bank’s own projections and allows for comparability of results. Four types of questions are asked:
- point estimates
- probability distributions
While most questions are quantitative in nature, a limited number of open-ended questions allow for the collection of qualitative results as well.
Of note, the MPS is also asks about expectations for a different jurisdiction (the United States). This reflects the fact that Canada is a small open economy with important ties to the United States, so perspectives on the Canadian economy are often informed by the US macroeconomic scenario. However, only survey results pertaining to Canada will be published since those are the most relevant for the Bank.
Follow-up interviews are conducted shortly after the questionnaire period with approximately two-thirds of respondents. Interview participants are rotated each quarter to ensure good panel representation. Each selected participant has a 45- to 60-minute conversation with Bank staff. The discussion broadly follows the main sections of the questionnaire and is based on a set of themes related to participants’ economic outlook, inflation and monetary policy expectations. Interviews provide Bank staff with the flexibility to focus on the most relevant themes for every MPS cycle and can be quickly adapted if significant macroeconomic or market developments occur after participants have submitted their questionnaire responses. Qualitative information gathered from follow-up interviews is summarized and adds significant depth and nuance to the quantitative responses of the questionnaire.
Throughout the pilot phase of the MPS, the survey sample was expanded. The current set of 30 participants have been selected based on the following general criteria:
- Relevance of expertise—Participants are senior economists or strategists involved in the areas addressed in the survey. However, survey responses are interpreted as not necessarily representing the view of the respondent’s organization, because not all participating institutions have public or firm-level forecasts. In some cases, people from different areas of an institution have different views (e.g., depending on the institution’s organizational structure, a commercial bank senior economist, an asset-management senior economist and a broker-dealer senior economist—all from the same institution—may have different forecasts and offer different perspectives).
- Representativeness—The sample selection ensures the collection of a diverse set of opinions across institution types (see Chart 1).
- Commitment to participate regularly in the survey—Participants are from institutions that are often involved in market intelligence activities. While participation in the MPS is voluntary, Bank staff work to ensure a high response rate and stability in the sample of respondents over time to maintain the quality of results.
Chart 1: The survey sample is well diversified across different types of market participants
Box 3: Cross-jurisdictional comparison
Box 3: Cross-jurisdictional comparison
Although the intent of the MPS is similar to that of other market participant surveys that central banks conduct, the structure and process have been adapted to Canadian circumstances. As Table 3-A shows, the MPS differs from other central bank surveys in several key ways:
- The frequency of the MPS is less. This is primarily because the MPS aligns with the four fixed policy interest rate announcement dates when the Bank publishes a new projection in its Monetary Policy Report. Also, the sample includes a significant share of buy-side investors, whose projections are updated less often than those from the sell side. As well, the reduced frequency of the MPS requires less use of resources—both of Bank staff and respondents.
- The MPS questionnaire will be published annually rather than before each quarterly cycle. This is because the questionnaire is intended to remain relatively static and will be updated only to reflect changes in the economic environment.
- The Bank will publish partial results:
- It will omit results related to the US economy and publish only those pertaining to Canada. This is because views on Canada are the most relevant to the Bank. This will also help the Bank avoid any potential communication or timing issues related to the Federal Reserve Bank of New York’s own surveys.
- Only quantitative results will be published. The Bank will exclude qualitative information gathered from interviews and open-ended questions. This is due to the challenges in consistently summarizing this type of information across all participants. This will also protect the confidential nature of some of the information respondents share with Bank staff.
Table 3-A: Key features of central bank surveys of market participants*
|Bank of Canada||Federal Reserve Bank of New York||European Central Bank||Bank of England||Reserve Bank of Australia|
|Name of survey||Market Participants Survey||Survey of Primary Dealers||Survey of Market Participants||Survey of Monetary Analysts||Market Participants Survey||Survey of Market Economists|
|Year of first publication||2023||2011||2014||2021||2022||1993|
|Sample size (number of respondents)||30||25||30||29||50–60||10–25|
|Frequency (times per year)||4||8||8||8||8||4|
|Timing of release of results||Approximately 2 weeks after publication of the Monetary Policy Report||3 weeks after the Federal Open Market Committee meeting||3 weeks after the Federal Open Market Committee meeting||The Monday after the monetary policy meeting of the Governing Council||1 day after Monetary Policy Committee meeting||In the Statement on Monetary Policy|
|Publication of aggregate results (all or partial†)||Partial||All||All||Partial||All||Partial|
|Follow-up interviews conducted||Yes||No||No||No||Yes‡||No|
* Table 3-A is not representative of the full sample of central bank surveys, which includes surveys from the Reserve Bank of New Zealand and the Bank of Mexico (forthcoming), among others.
† Partial means responses to some of the questions asked are not published.
‡ Interviews do not systematically follow the survey.
The Bank carefully considered the risks associated with conducting the MPS and publishing its results and has put important safeguards in place:
- The MPS is strictly a staff initiative. The Bank’s Governing Council is not involved in administering the survey or formulating the questions. This is to limit any risk of the MPS being perceived as a signal of Governing Council’s views.
- The panel composition and interview process ensure that staff collect diverse and well-informed perspectives. This mitigates the risk of the data collected, and the resulting analysis, being unbalanced or too narrowly focused on a small number of individuals or certain types of institutions.
- Before inclusion in the MPS, the questionnaire and themes for the follow-up interviews are discussed with and approved by senior management in the Bank’s Financial Markets Department. This ensures that the questionnaire and interview themes are presented in a neutral manner and that the discussions with participants are based on information that is available to all market participants. Interviews are also completed before the start of the Bank’s blackout period to avoid any perception that the questions asked may signal Governing Council’s views or that respondents are receiving privileged access to the Bank during this period.6
- The Bank handles privileged information received from participants, such as their macroeconomic projections, in accordance with its information security and privacy policies as well as its Code of Business Conduct and Ethics.
Before the MPS design was finalized, an independent review of survey quality was conducted by other Bank staff not involved in the creation of the MPS. The review was based on a list of criteria (e.g., simplicity and meaningfulness of questions, consistency with other Bank of Canada or central bank surveys, and minimization of signalling risk). It resulted in some adjustments to the MPS, such as refining questions or removing those that had a consistently lower response rate.
The survey questions are not likely to change often. New questions or changes to existing questions will be made only in the context of important shifts in the macroeconomic environment. Similarly, the panel composition will be reviewed annually, with the goal of keeping participants engaged and to maintain the quality of survey results. This periodic review will also allow for the addition of new participants to ensure a representative and diverse sample of respondents.
Use of Market Participants Survey results
Broadly speaking, the MPS informs many aspects of Bank staff’s monetary policy analysis and advice to Governing Council. The timing of the MPS (as illustrated in Figure 1) aligns with the staff analysis process and internal deliberations. The Financial Markets Department presents the MPS results as part of staff’s final policy recommendations that inform Governing Council’s views on the expectations of financial market participants. These results are summarized and presented as part of the tactical and communications advice provided for the upcoming decision. As the survey matures, the results may be used in other public communications, such as speeches. As well, the quantitative data will, over time, enable or support some of the Bank’s long-term research.
As noted above, survey data complement market-based indicators and other surveys. But specific MPS questions add to the Bank’s understanding of market conditions and market sentiment in three ways.
First, some MPS questions generate a distribution of responses rather than single point estimates (see Chart 2 for an example). This is particularly relevant for smaller countries like Canada. Local markets are sometimes less liquid or have fewer available market-based indicators to derive probability distributions from. This makes it more difficult to extract meaningful information from market price data alone. As well, the distributions are more relevant during periods of high uncertainty.
Chart 2: Average probability of CPI inflation being in various ranges at the end of 2023
Second, some MPS questions capture quantitative data points that are not available in market price data or, if they are available, the information is difficult to standardize and aggregate. This includes MPS questions about risks to participants’ outlooks, the risk of a recession, and previous survey questions about the estimated size of the Bank’s balance sheet.
- For example, during the Bank’s quantitative easing program, MPS participants were asked to estimate what size the Bank’s balance sheet would be at different points in time. This allowed Bank staff to gauge respondents’ expectations for the total amount of asset purchases made by the Bank and to infer how long participants anticipated the program would last.
- As another example, Chart 3 shows the results from a recent addition to the questionnaire that measures participants’ expectations for a recession.
- The flexibility of the MPS allows Bank staff to add or remove questions depending on current circumstances. The balance sheet estimate question first appeared in the October 2020 MPS and was discontinued in June 2022, a few months after the Bank ended quantitative easing and entered the reinvestment period.
Chart 3: Median probability of the economy being in a recession in different time frames
Third, the MPS follow-up interviews with market participants allow Bank staff to gather additional qualitative information to supplement the survey-based data. For example, Chart 4 shows how a given distribution of results can be compared with market data but still be in need of further discussion to understand the motivations and biases behind those results. Interviews allow staff to further explore the drivers of and shifts in expectations for the interest rate path and risks around the base case scenarios.
Chart 4: Expected path for the Bank of Canada’s policy interest rate
MPS respondents have also highlighted the benefits of both the questionnaire and the follow-up interviews. The interviews offer an opportunity for two-way dialogue on pressing issues related to economic developments, allowing participants to more clearly communicate their views to Bank staff and provide feedback on the Bank’s communications. Published results will offer market participants a way to benchmark their analyses and views against a broad and representative sample of their peers.
Of course, as with the information collected through market liaison activities, challenges do exist in interpreting these data. One such challenge is the timing of when results are collected. Given the resource implications and timing of Bank staff analysis, the survey is conducted several weeks before the Bank’s monetary policy decision announcement. Since market participants update their forecasts and expectations closer to the time of the announcement date or around key data releases, the survey responses may not reflect respondents’ final views as they assess new data releases. Another challenge is the ambiguity of whether expectations around monetary policy indicate what market participants think central banks should do or what they will do. In light of both of these challenges, the post-survey interviews and other market liaison activities help ensure that staff analysis is robust.
Despite these caveats, Bank staff have found the MPS to be a valuable addition to the Bank’s market intelligence tool kit and internal market analysis. The MPS yields important qualitative insights and quantitative data that are not available in market pricing data. This improves the quality of staff analysis for monetary policy decision making and further strengthens relationships with market participants. Beginning in January 2023, the Bank will publicly release MPS results on Canadian expectations on a quarterly basis. This further enhances the Bank’s transparency and, in turn, provides helpful information to the broader public.
- 1. For a review of cross-jurisdictional practices, please see Bank for International Settlements, “Market Intelligence Gathering at Central Banks,” Markets Committee Papers No. 8 (December 2016). [←]
- 2. The Bank has been conducting surveys for many years to gauge households’ and businesses’ expectations for various areas of the Canadian economy. It gathers macroeconomic insights mostly from discussions with Canadian businesses and industry leaders through the Business Outlook Survey and with households through the Canadian Survey of Consumer Expectations. The Bank also collects information on financial system risks through the Financial System Survey.[←]
- 3. The Bank’s core functions include implementing monetary policy, fostering a stable and efficient financial system, issuing currency, managing funds and supervising retail payments. For more information, see Core functions on the Bank of Canada’s website.[←]
- 4. Mandates, membership, meeting minutes and any supplementary materials for the Canadian Foreign Exchange Committee and the Canadian Fixed-Income Forum are available on the Bank’s website.[←]
- 5. L. Patterson, “Markets Calling: Intelligence Gathering at the Bank of Canada” (speech delivered to CFA Society Calgary, Calgary, Alberta, June 28, 2017).[←]
- 6. For more information on the Bank of Canada’s blackout periods, see Blackout Guidelines on the Bank’s website.[←]
This work draws on previously unpublished and past work by Monica Jain, Joanna Roberts and Zabiullah Tarshi. The authors thank Stephane Lavoie, Virginie Traclet, Jeremy Harrison and Wendy Chan for comments and feedback.
Bank of Canada staff analytical notes are short articles that focus on topical issues relevant to the current economic and financial context, produced independently from the Bank’s Governing Council. This work may support or challenge prevailing policy orthodoxy. Therefore, the views expressed in this note are solely those of the authors and may differ from official Bank of Canada views. No responsibility for them should be attributed to the Bank.