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

Growth in the Canadian economy has been essentially in line with the expectations set out in the Bank’s January Monetary Policy Report Update.

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

Canada’s inflation-control targets establish a specific medium-term objective for monetary policy.

The global economy has been unfolding largely as expected, and prospects for continued robust growth are quite favourable, especially over the near term.

Household debt can be an important source of vulnerability to the financial system. This technical report describes the Household Risk Assessment Model (HRAM) that has been developed at the Bank of Canada to stress test household balance sheets at the individual level.

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.

How do banks' interconnections in the euro area contribute to the vulnerability of the banking system? We study both the direct interconnections (banks lend to each other) and the indirect interconnections (banks are exposed to similar sectors of the economy). These complex linkages make the banking system more vulnerable to contagion risks.