Staff analytical papers

Canada has spent more than its national income for much of the post-Global Financial Crisis period. Yet favourable asset-price and exchange-rate movements have raised Canada’s net foreign assets. Since 1990, cumulative valuation gains were about three times the current-account deficit, relaxing the adjustment needed to stabilize Canada’s external position.

Canadian housing imbalances have elevated shelter inflation as a driver of CPI, fueled by high house prices, mortgage costs, rents, supply constraints, and leverage. This note uses a model with housing supply and extrapolative expectations to assess whether monetary policy should incorporate or look through shelter inflation under demand and supply shocks.

We examine the effects of monetary policy shocks on the Canadian housing market. Using high-frequency surprises around fixed announcement dates as an instrument in a Bayesian VAR, we estimate the responses of house prices, housing starts, building permits, resales, inventories, and mortgage purchases to a contractionary monetary policy shock. An increase in the policy rate leads to a substantial and persistent decline in average house prices. Housing starts and building permits fall, but their implied effects on the future housing stock are both slow and modest. Interpreted through the lens of market equilibrium, these results are most consistent with a stronger response of housing demand than housing supply.

This paper examines how auction timing may affect sovereign issuance outcomes through its interaction with market volatility. Using Canada as a case study, it shows that: (1) higher same-day bond market volatility is associated with larger auction tails, indicating weaker demand conditions; and (2) monetary policy announcements and certain macroeconomic data releases are systematically associated with higher same-day volatility.

We develop a news-based measure of perceived financial stress for Canada using Globe and Mail articles since 1977. We show that news shocks primarily impact unsecured households credit, consistent with household precautionary behavior.

Using proprietary FXC Intelligence data on quoted prices for Canadian business-to-business cross-border payments, this note finds that banks charge firms around 2–3.5% of transaction value. Prices vary considerably across banks for the same corridor, transaction amount, and year.

The BoC–BoE database of sovereign debt defaults, published and updated annually by the Bank of Canada and the Bank of England, provides comprehensive estimates of stocks of government obligations in default.

Prima is the Bank of Canada’s new model for projection and policy analysis. It builds on the economic foundations of earlier Bank models, adding detail on how sectoral pressures affect production costs and their pass-through to consumer prices.

Producer price indexes measure changes in the prices that producers receive for their outputs or that they pay for their inputs. Statistics Canada publishes a range of producer price indexes for specific products and industries. For the first time, these series have been combined into a small set of broad sectoral measures.

Setting the target rate is the most visible part of monetary policy, but the monetary policy implementation framework is what helps ensure that decision is reflected in financial markets. Through the design and use of its tools and facilities, the Bank of Canada helps keep short-term market interest rates close to the policy target, while preserving incentives for market participants to trade and actively manage liquidity.