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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.

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.

At the Bank of Canada, we have worked hard over the past several years to define our goals and our methods for achieving them. We have continued to strengthen our monetary policy framework, and we have established priorities in all areas of our operations to help us meet our strategic objectives. In 2002, the Bank set out a medium-term plan for the period 2003–05. The plan’s clearly defined policy frameworks and priorities were critical in guiding our analysis and our decisions in 2003, a year in which Canadians across the country were affected by a number of severe and unanticipated events.

This paper explores how the Canadian futures market contributed to banks’ systemic risk during the 2008 financial crisis. It finds that core banks as a whole traded against the periphery, in this way increasing their risk of simultaneous losses.

The turmoil in global financial markets entered a new phase in September, moving to a more acute and broad-based loss of confidence in the context of a series of failures and near-failures of large financial institutions in the United States and Europe.

FSR Highlights - December 2008

Consumption inequality and a low interest rate environment are two important trends in today’s economy. But the implications they may have—and how those implications interact—within different monetary policy frameworks are not well understood. We study the ranking of alternative frameworks that take these trends into account.

An alternative to the standard CES aggregator, based on non-homothetic household preferences, is proposed. Specifically, the elasticity of substitution between goods declines during periods of strong per-capita consumption and vice versa, giving firms an incentive to adjust their desired markup in response to the state of demand. Empirical evidence favouring a direct role for per-capita consumption demand in inflation determination for Canada is presented.

Bank of Canada Governor Tiff Macklem discusses how artificial intelligence could impact the economy, and outlines some of the implications for monetary policy.

With inflation remaining low for the sixth consecutive year, the Canadian economy recorded a strong expansion of about 4 per cent through 1997.

Stephen Murchison reviews the findings of recent Bank of Canada research on the relative merits of inflation targeting and price-level targeting (PLT) for a small open economy, such as Canada's, that is susceptible to large and persistent terms-of-trade shocks.