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Cash use for payments has been steadily decreasing in many countries, including Canada and Sweden. This might suggest an evolution toward a cashless society. But in Canada, cash in circulation relative to GDP has been stable for decades and has even increased in recent years. By contrast, the cash-to-GDP ratio in Sweden has been falling steadily. What has caused this difference? Are there lessons to be learned from comparing the Canadian and Swedish experiences?

We conduct a randomized information experiment leveraging the Canadian Survey of Consumer Expectations. We provide causal evidence that respondents revise both their short- and medium-term expectations of future house price growth in a way that is consistent with observed short-term momentum in house prices. However, empirically, house price growth tends to revert to its mean in the medium term.

The most extreme events, such as economic crises, are rare but often have a great impact. It is difficult to precisely determine the likelihood of such events because the sample is small.

Government of Canada bonds in circulation that promise very similar payoffs can have different prices. We study the reason for these differences. Bonds that trade more often and earn high rental income in the repurchase agreement (repo) market tend to have higher prices. Bonds with longer tenors and times to maturity tend to have lower prices. This contrast between cheap and expensive bonds is important because trading volume and rental income can change rapidly, unlike tenor and time to maturity, which are stable.

Most models in finance assume that agents make trading plans over the infinite future. We consider instead that they are boundedly rational and may only form forecasts over a limited horizon.

This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.

Liquidity demands in real-time gross settlement payment systems can be enormous. To reduce the liquidity requirement, central banks around the world have implemented liquidity savings mechanisms (LSMs).

There was an unusually large decline of bank notes in circulation in October 2018. Some have argued that this was due to the legalization of cannabis in Canada in mid-October.

We propose a macroeconomic model in which adverse selection in investment drives the amplification of macroeconomic fluctuations, in line with prominent roles played by the credit crunch and collapse of the asset-backed security market in the financial crisis.

Cash gives users a high level of privacy when making payments, but the use of cash to make payments is declining. People increasingly use debit cards, credit cards or other methods to pay.