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Policy-makers around the world met the intensification of the global financial crisis at the end of 2008 with a forceful response aimed at restoring confidence in the global financial system, promoting the flow of credit, and supporting economic activity.

FSR Highlights - June 2009

Erratum: Legends for Chart 13 on page 15 of the June 2009 issue should read: Argentina (right scale), Mexico (left scale). See revised chart.

The Bank's Monetary Policy Report (MPR) has been published since May 1995. Currently, there are about 1,400 subscribers to the MPR. Some 6,100 readers are notified of its publication through Bank Messenger, an email alert service. Earlier this year, the Bank decided to seek formally, for the first time, readers' views on the MPR (its […]

Examining the incentives for banks to hold various assets on their balance sheets for use as collateral when the opportunity cost of doing so can be high; an outline of the complexity inherent in any modern risk-management system and review of possible strategies to improve the performance of risk management; causes and consequences of the changing pace of labour reallocation in Canada; description of the structure and functioning of BoC-GEM— an adaptation of the Global Economy Model— with examples of its recent application.

Survey respondents reported continued tightening in lending conditions. Respondents attributed the ongoing tightening to concerns about the economic outlook and to industry-specific factors.

In an environment of continued high uncertainty, the global recession has intensified and become more synchronous since the Bank’s January Monetary Policy Report Update, with weaker-than-expected activity in all major economies.

Errata: The source for Chart 1 (on page 3) is Global Insight, not the Bank of Canada. As well, in chart 15 (on page18), the base year for the exchange rate index CERI excluding the U.S. dollar should read 1992=100, not 1997=100.

Business sentiment remains negative. While some indicators have inched up from historical lows, the results of the spring survey continue to suggest a weak outlook for the Canadian economy.

Examination of progress in the Bank’s exploration of two alternatives to the current inflation-targeting framework: (i) lowering the inflation target and (ii) shifting to a price-level target; a review of arguments for and against price-level targeting, focusing on its costs and benefits compared with inflation targeting; assessing the merits of price-level targeting vis-à-vis inflation targeting from a debt-revaluation perspective; quantifying redistribution of wealth in Canada in the face of unexpected inflation.

It has been a difficult year. The financial turmoil that began mid-2007 deteriorated into a full-blown global financial crisis through 2008. While the resilience and soundness of the Canadian financial system were in many respects exceptional, the scale of the financial crisis and the subsequent global recession had an increasing impact by year’s end on our financial system and our economy.

The outlook for the global economy has deteriorated significantly since the October Monetary Policy Report. The financial crisis intensified last autumn and spilled over into an already weak global economy, which, in turn, put further strains on the financial system.

Erratum: In Table 1 Interest Rates, the column "Estimated variable mortgage rate" should read 5.65 per cent for 4 December 2007 not 5.25.