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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.

From the end of 2008 to the middle of last year, Canada experienced a short, sharp recession. With the exception of government spending, all major components of aggregate demand declined, and industrial production dropped 15 per cent.

This article describes the Bank of Canada’s version of the Global Economy Model structured to incorporate an active banking system that features an interbank market and cross-border lending. After describing the new model, the authors use it to examine the responses of selected U.S. and Canadian macroeconomic variables to a “credit crunch” in the United States and also to study the impact of changes in the regulatory limits to bank leverage in Canada. They also discuss the relative merits of a monetary policy framework based on inflation targeting and one based on price-level targeting in the presence of shocks to the U.S. and Canadian banking sectors.

Responses to the autumn survey suggest that the Canadian economy is recovering, as all indicators of business activity have increased since the summer survey. However, because firms continue to expect activity to pick up only gradually, they remain cautious regarding investment.

Responses to the summer survey provide further indications that uncertainty regarding the nature and timing of a notable improvement in growth prospects is bearing on firms’ expectations and investment decisions.

Using Canadian firm-level market shares and an oligopolistic model, the paper shows that a 25% counter-tariff on U.S. imports raises Canada's aggregate price index by 0.66%, far below direct cost pass-through predictions due to consumer substitution and markup adjustments.

Natural disasters can create important challenges for monetary policy in resource-rich small open economies. Using a DSGE model calibrated to Canada, we show that most disasters operate as adverse supply shocks, lowering output and raising inflation, thereby creating a trade-off for monetary policy.

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 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.

We propose a model to understand low observed migration rates by considering the interaction between location and wealth decisions. We look at different policies and find that temporary moving vouchers only slightly increase welfare, while lower housing regulations can decrease the welfare gap by lowering house prices nationwide.