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We revisit an old question: how do financial constraints affect the transmission of monetary policy to the real economy? To answer this question, we propose a simple empirical strategy that combines firm-level employment and balance sheet data, identified monetary policy shocks and survey data on financing activities.

This newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.

This paper provides a comprehensive overview of Canada’s Large Value Transfer System (LVTS).

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.

Central banks can implement unconventional monetary policy measures to provide additional easing when policy interest rates come close to their lower limit. To date, the international experience with tools such as quantitative easing and negative interest rates has been largely positive. Central banks may also use several such measures simultaneously, with often mutually reinforcing effects. Yet, unconventional tools are also subject to potential limits, and the costs associated with these measures could rise with extensive and prolonged use.

This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.

The Annual Report outlines the Bank’s activities and achievements in 2016. It includes the financial statements and a message from Governor Stephen S. Poloz.

An important channel in the transmission of monetary policy is the relationship between the short-term policy rate and long-term interest rates. Using a new term-structure model, the authors show that the variation in long-term interest rates over time consists of two components: one representing investor expectations of future policy rates, and another reflecting a term-structure risk premium that compensates investors for holding a risky asset. The time variation in the term-structure risk premium is countercyclical and largely determined by global macroeconomic conditions. As a result, long-term rates are pushed up during recessions and down during times of expansion. This is an important phenomenon that central banks need to take into account when using short-term rates as a policy tool.

The Annual Report outlines the Bank’s activities and achievements in 2017. It includes the financial statements and a message from Governor Stephen S. Poloz.

The three articles in this issue provide an overview of the monetary policy decision-making process at the Bank of Canada, a discussion of Bank research on the assessment of vulnerabilities in the financial system and a description of recent fragmentation in Canadian equity markets.