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Senior Deputy Governor Tiff Macklem discusses the importance of pressing ahead with financial reforms despite the weak global recovery.

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.

The consumer price index (CPI) is used to measure changes in the price level of consumer goods and services. As an indicator of changes in the cost of living, it is susceptible to various types of measurement biases. This article provides estimates of the size of these biases in the Canadian CPI. It concludes that the rate of increase in the CPI probably overstates the rate of increase in the cost of living by about 0.5 percentage points per year.

Governor Mark Carney discusses financial system reform in a speech to the Canadian Club of Montréal.

In these excerpts from a presentation to a conference in Toronto, Deputy Governor Charles Freedman analyses the way in which the monetary conditions index (MCI) enters into the Bank's thinking and actions. He describes how the Bank works in the context of a forward-looking assessment of economic developments and inflationary pressures to decide upon a desired path for the MCI that will result in a rate of inflation, six to eight quarters ahead, that is within the Bank's target band. Mr. Freedman also uses specific examples to explain how various shocks to the economy can change the Bank's desired path for monetary conditions. He describes the role that tactical considerations relating to market circumstances play regarding the timing of Bank actions to bring monetary conditions onto the desired path and emphasizes the need to give precedence to steadying nervous markets.

Many derivatives markets use collateral requirements calculated with industry-standard but dated methods that are not designed with systemic risk in mind. This paper explores whether the conservative nature of conventional collateral requirements outweighs their lack of consideration of systemic risk.

Governor Stephen S. Poloz talks about the outlook for Canada’s economy and the adjustment to lower resource prices.

The LVTS is an electronic network for sending and receiving large-value payments. It is expected to become operational in the first half of 1999. Major chartered banks and other large deposit-taking institutions will provide access to the system for their clients in the financial, corporate and government sectors. Canada’s LVTS exceeds world standards for risk control in large-value systems. The author explains how this is achieved through the netting, bilateral and multilateral credit limits, collateral, and loss-sharing procedures used in the event of a default, and, as a last resort, a guarantee by the Bank of Canada. The LVTS gives participating institutions certainty of settlement for their LVTS positions every day, even if one or more participants default. This greatly reduces systemic risk in the financial system. Moreover, the LVTS supports finality of payment; that is, it makes funds unconditionally and irrevocably available to the receiver. Finality is highly desirable when the amount of the payment is substantial, or when exact timing is critical. Since the LVTS will carry the great majority of the value of all payments in Canada, it should be considered the core of the national payments system.

Quarterly Financial Report - Third Quarter 2018 - For the period ended September 30, 2018