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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.

During the past six months, global economic uncertainties have intensified, largely as a result of developments in emerging-market economies.

The Canadian economy continued to expand robustly in 2000 while inflation remained low.

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 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.

This paper studies the implications of model uncertainty for wealth distribution in a tractable general equilibrium model with a borrowing constraint and robustness à la Hansen and Sargent (2008). Households confront model uncertainty about the process driving the return of the risky asset, and they choose robust policies.

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

We study the formation of price bubbles on experimental asset markets where cash earns interest. There are two main conclusions.

The official Chinese labour market indicators have been seen as problematic, given their small cyclical movement and their only-partial capture of the labour force. In our paper, we build a monthly Chinese labour market conditions index (LMCI) using text analytics applied to mainland Chinese-language newspapers over the period from 2003 to 2017.

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.