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This article focuses on the role that loans backed by housing collateral play in amplifying housing booms and, more generally, procyclicality in the housing market. The author uses a model developed to include borrower and lender households, as well as a housing market, to examine the impact that altering the loan-to-value ratio (either permanently or countercyclically) might have on the volatility of house prices and mortgage debt.

Since the October Monetary Policy Report, three developments have led the Bank of Canada to modify its outlook for economic growth and inflation in Canada.

The Bank’s outlook for inflation and overall economic activity in Canada to the end of 2002 has not changed fundamentally from that presented in the May Monetary Policy Report.

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Roman Antoninianus

The coins form part of the National Currency Collection of the Bank of Canada.
Photography by Gord Carter, Ottawa.

The process that the Bank of Canada follows to make its monetary policy decisions has evolved over time. This process is very information-intensive and collaborative, drawing on the expertise, judgment and analysis of many people. This article describes monetary policy decision making at the Bank, and discusses some common misconceptions about monetary policy and the process.

The Bank projects that the Canadian economy will continue to grow in line with its potential through 2020.

The results of the winter survey provide some evidence that confidence in the recovery is growing. While the balance of opinion on future sales is little changed, and respondents still expect the recovery to be gradual, more firms are planning to increase investment spending and employment than in the previous two surveys.

Businesses remain positive about the economic outlook, although some forward-looking indicators have eased from the levels recorded in recent surveys, and the strength in commodity prices has raised expectations for costs and inflation.

Erratum: Please note that the legend for Chart 9 (French version only) should read as follows: au-dessus de 3 % , rather than au-dessous de 3 %

The results of the autumn survey suggest that, in an environment of slow global economic growth and uncertainty about demand, firms have tem¬pered their expectations for business activity.

Since the April Monetary Policy Report, there have been a number of unanticipated developments that have changed the outlook for inflation and economic activity in Canada.