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Recent findings on the term structure of equity and bond yields pose serious challenges to existing models of equilibrium asset pricing. This paper presents a new equilibrium model of subjective expectations to explain the joint historical dynamics of equity and bond yields (and their yield spreads).

We study optimal monetary policy in an analytically tractable Heterogeneous Agent New Keynesian model. In the model, the central bank has an incentive to reduce consumption inequality in addition to keeping economic activity at its efficient level and inflation stable.

Over this period, there has been a fundamental transformation in the way monetary policy is conducted in Canada and in most other industrial countries. While globalization and technological change have played an important role in this area, as in so many others, they have not, to my mind, been the principal driving force behind this transformation. Far more important has been the interaction of experience and economic theory.

Using stock market data on banks, we show that the book value of loans recognizes losses with a delay. This delayed accounting is important for regulation because the requirements regulators impose are based on book values.

We investigate the uncertainty around stock returns at different investment horizons. Since a return is either a loss or a gain, we categorize return uncertainty into two components—loss uncertainty and gain uncertainty. We then use these components to evaluate investment.

As economies have become more interconnected through trade and financial flows in a truly global marketplace, economic developments in one location can quickly have repercussions on the other side of the globe. In 1997, what began as a currency devaluation in Thailand became a crisis with repercussions not just in Asia, but in countries as far away as Russia, Brazil, and Canada.

Governor Poloz talks about how the Bank is improving communications with the public and helping financial markets understand its monetary policy approach.

We analyze the impact of interest rate policy on financial stability in an environment where banks can experience runs on their short-term liabilities, forcing them to sell assets at fire-sale prices.

Government of Canada bonds in circulation that promise very similar payoffs can have different prices. We study the reason for these differences. Bonds that trade more often and earn high rental income in the repurchase agreement (repo) market tend to have higher prices. Bonds with longer tenors and times to maturity tend to have lower prices. This contrast between cheap and expensive bonds is important because trading volume and rental income can change rapidly, unlike tenor and time to maturity, which are stable.