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The Canadian economy continues to adjust to developments in the global economy.

In the year just ended, the global economy faced a number of exceptional challenges, reflecting a wide range of economic, financial, and geopolitical risks and uncertainties. These included the fallout from the September 2001 terrorist attacks, corporate accounting scandals, stock market volatility, and developments in the Middle East. Despite this global backdrop, the Canadian economy outperformed virtually all other industrial economies, growing by about 3 1/4 per cent and creating 560,000 jobs, while inflation expectations remained well anchored to the Bank of Canada’s 2 per cent inflation-control target.

How do changes to personal and corporate income tax rates in the United States affect its trading partners? Spillover effects from cuts in the two taxes differ. They are generally small and negative for corporate taxes, but sizable and positive for personal income taxes.

We develop a principal-agent model of cyber-attacking with fee-paying clients who delegate security decisions to financial platforms. We derive testable implications about clients’ vulnerability to cyber attacks and about the fees charged.

In 2005, the Bank of Canada celebrated its 70th anniversary. Since the Bank opened its doors in March 1935, it has evolved into a national institution at the heart of Canada’s economy. We had a lot to celebrate in 2005—particularly our progress over the past 70 yearsand our continuing contribution to the economic and financial well-being of Canadians.

This Report outlines recent developments in the Canadian economy that affect the rate of inflation and provides an account of the measures taken by the Bank of Canada to control inflation.

Positive commodity price shocks reduce labor income inequality in commodity-exporting economies by compressing the skill premium, as unskilled-labor-intensive sectors such as construction expand faster than skill-intensive services. A multisector small-open-economy model shows how saving or spending commodity windfalls can reinforce or moderate this decline in inequality.

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

The Canadian economy regained strong momentum in 1999 as the U.S. economy remained vigorous, the global economy recovered, and commodity prices moved upwards.

The Canadian economy continues to adjust to major global developments.