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The year that just passed posed many challenges for all Canadians. The slowdown in the global economy became more pronounced as the year went on, and this affected households, businesses, and governments alike. The tragedy of 11 September compounded the economic difficulties and issues facing us all. Through this period of rapidly changing circumstances, the Bank met its responsibilities by responding quickly and vigorously to events in order to underpin confidence and support the economy.

This paper studies the effects of financial development, taking into account both formal and informal financing. Using cross-country firm-level data, we document that informal financing is utilized more by rich countries than poor countries.

The Canadian economy continues to grow at a solid pace, consistent with the Bank’s outlook in the January Monetary Policy Report Update.

In the last half-year, the economic expansion in Canada has become well established, supported by low inflation, highly stimulative monetary conditions, and a strong U.S. economy.

There have been a number of significant economic and financial developments since the time of the July Monetary Policy Report Update.

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.

Since the last Report, the Canadian economy has advanced broadly in line with expectations.

This Report presents the Bank of Canada’s assessment of the trend of inflation in Canada and explains the monetary policy actions deemed necessary to keep inflation within the Bank’s inflation-control target range.

The global economy has continued to grow at a robust pace since the July Monetary Policy Report Update.

This is the second in a series of semi-annual reports designed to increase the transparency and understanding of Canadian monetary policy.