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Businesses are somewhat more optimistic about the outlook than they were in the spring, reflecting increased confidence about the robustness of the global economic recovery.

This section of the Financial System Review examines the recent performance of the Canadian financial system and the factors, both domestic and international, that are influencing it. In each issue, one or more subjects of particular interest are discussed as highlighted topics.

Since the autumn of 1997, the regional offices of the Bank of Canada have conducted quarterly consultations with businesses across Canada. Timed to feed into the process that precedes the Bank's fixed dates for announcing monetary policy decisions, the consultations (now referred to as the Business Outlook Survey) are structured around a questionnaire which is sent to 100 firms that reflect the Canadian economy in terms of region, type of business activity, and firm size. Martin describes both the consultation process and the questionnaire and makes an initial assessment of the data gathered during the business interviews. The article includes charts and correlation tables that illustrate the responses to the key questions included in the survey.

Cover page

The Millennial Celebrations in Ancient Rome

The coins pictured on the cover range from approximately 20 to 35 mm in diameter and form part of the National Currency Collection, Bank of Canada.

Photography by Gord Carter, Ottawa

Economists' long-standing interest in the degree to which exchange rate movements are reflected in prices was rekindled in the 1970s by a combination of rising inflation and the adoption of more flexible exchange rate regimes in many industrialized countries. Specifically, there were concerns that a large currency depreciation could degenerate into an inflationary spiral. Such fears were curtailed in the 1980s and early 1990s as industrialized countries began to reduce and stabilize their inflation rates. The low-inflation period most industrialized countries entered approximately a decade ago coincided with significant exchange rate depreciations that had much smaller effects on consumer prices than expected. This led to a belief that the extent to which exchange rate movements are passed through to consumer prices has declined. In this article, the authors examine why pass-through could be incomplete and review empirical estimates to determine whether pass-through has indeed declined, suggesting possible reasons for this decline and discussing the implications for monetary policy.