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

Over the past year, Canada’s economy has outperformed the economies of virtually all the other major industrial countries.

Using the Bank of Canada's Currency Information Management Strategy, we analyze the network structure traced by a bank note’s travel in circulation and find that the denomination of the bank note is important in our potential understanding of the demand and use of cash.

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 April Monetary Policy Report, the Bank noted that inflation was well above its 2 per cent target and that short-term inflation expectations had edged up.

This equilibrium model explains the trend in long-term yields and business-cycle movements in short-term yields and yield spreads. The less-frequent inverted yield curves (and less-frequent recessions) after the 1990s are due to recent secular stagnation and procyclical inflation expectations.

The Canadian economy continues to operate just above its full production capacity, and the near-term outlook for core inflation has moved slightly higher.

Modeling and estimating persistent discrete data can be challenging. In this paper, we use an autoregressive panel probit model where the autocorrelation in the discrete variable is driven by the autocorrelation in the latent variable. In such a non-linear model, the autocorrelation in an unobserved variable results in an intractable likelihood containing high-dimensional integrals.

Using the quantum Monte Carlo algorithm, we study whether quantum computing can improve the run time of economic applications and challenges in doing so. We apply the algorithm to two models: a stress testing bank model and a DSGE model solved with deep learning. We also present innovations in the algorithm and benchmark it to classical Monte Carlo.

Since the May Report, the international economic environment has continued to improve. Economic activity abroad grew faster than expected, while inflation in the major economies remained subdued.