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t the time of the April Monetary Policy Report, it was evident that a robust economic recovery was underway in Canada.

Over the last 10 years, the level of inflation has been much lower than in the previous two decades. At the same time, the behaviour of inflation has changed profoundly. By surveying the data and the economic research, the author first examines changes in the variability, growth rates, and behaviour of some of the major macroeconomic variables during the 1980s and 1990s. He then looks at how these changes are linked to a shift in the approach of monetary policy over the period. Lastly, he reviews the economic benefits that these changes have had for Canada.

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Japanese Hansatsu

The notes on the cover range in value from 5 ryo to 50 mon and date from the late eighteenth century to the mid-nineteenth century. The largest measures 5.5 by 16.8 centimetres. All four pieces are part of the National Currency Collection, Bank of Canada.

Photography by James Zagon, Ottawa.

This article describes the major trends in the growth of labour productivity in Canada since the early 1960s and summarizes our current knowledge about the causes of the historical patterns. Particular attention is given to the period since the mid-1990s during which productivity growth has been significantly higher in the United States than in Canada. The author reviews the empirical evidence on the contribution of information and communication technology to the recent difference between Canadian and U.S. rates of productivity growth. Other determinants of a country's productivity performance, such as human capital formation and openness to international trade, are also examined. The article concludes with an assessment of the prospects for an increase in the trend rate of productivity growth in Canada over the coming years.

This article explores the evolution of capital flows to emerging markets over the last 30 years with emphasis on the past decade. Capital markets in emerging-market economies have evolved substantially over the period, becoming increasingly deep and resilient. The author looks at how capital flows to these countries have changed in terms of magnitude, geographical distribution, the financial instruments used, and the country of origin. He also examines how changes in the investor base have affected these flows and reviews the factors underlying the growth of private capital flows in the 1990s.

Since 1995, acquisitions of foreign firms by Canadian residents and acquisitions of Canadian firms by foreign residents have increased. Through most of this period, the dollar has depreciated, but the cumulative net balance of foreign direct investment acquisition flows has remained close to zero. The recent upward trend in bilateral acquisition flows is part of the globalization process as firms consolidate and rationalize their operations, and is not related to the value of the Canadian dollar. Standard models of international asset pricing imply that there should not be a relationship between the Canadian exchange rate and foreign takeovers of Canadian firms because an exchange rate movement does not give foreign buyers a systematic advantage over domestic buyers. Purchases of domestic firms by foreign residents are likely to be welfare-improving. Transactions between foreign and domestic residents are voluntary, and they imply that the foreign buyers expect to obtain higher profits from the firms' assets.

At the time of last November’s Monetary Policy Report, two issues dominated the analysis: the global economic slowdown and the fallout from the September terrorist attacks.

In the November Monetary Policy Report, the timing and extent of the recovery in economic activity in Canada this year was seen as depending crucially on geopolitical developments and on how quickly consumer and business confidence would return to normal.

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Byzantine 40-Nummi Piece

The 40-nummi piece was the largest and heaviest copper coin minted under Justinian. About the size of an old Canadian silver dollar, it weighs 22.76 grams. It was struck in Constantinople (now Istanbul), the capital of the Byzantine Empire and is part of the National Currency Collection, Bank of Canada.

Photography by James Zagon, Ottawa.