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The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent.

Since the July Monetary Policy Report Update, and against a backdrop of robust global economic expansion and strong commodity prices, the Canadian economy has been stronger than projected. It is now operating further above its production potential than had been previously expected.

Deputy Governor Sylvain Leduc discusses the issues that led Governing Council to hold the policy interest rate at 1.25 per cent in their May 30 decision.

Economists in the nineteenth century spent considerable time discussing the merits of a free-banking system, in which each commercial bank would be able to issue its own notes and deposits, subject to a convertibility requirement backed by its own gold reserves. Such a system, the proponents argued, would be able to deliver price-level stability yet be flexible enough to withstand the vicissitudes of the business cycle. Moreover, there would be no need for central banks. While this idea has received less attention in recent years, some economists still put it forward as a practical alternative to the current system. Laidler suggests that the centralizing tendencies in banking would inevitably undermine competition within a free-banking system, and lead to the natural emergence of one dominant bank. Other developments in the twentieth century, most notably the demise of the gold standard and widespread agreement that governments should play a determining role in setting monetary policy goals, have also limited the practicality of such a system. Laidler examines the Bank of Canada's history from the free-banking perspective and concludes that the current system of inflation targeting provides a much better anchor for orderly price-level behaviour than the free-banking system's convertibility could ever guarantee.

In his speech entitled “How People Think and How it Matters,” delivered to the Canadian Association for Business Economics, Deputy Governor Jean Boivin reviews various ways people form expectations and how these affect monetary policy.

Global economic growth has been somewhat stronger than projected, with momentum in emerging-market economies increasing noticeably.

Governor Stephen S. Poloz discusses the role of a floating exchange rate in the Canadian economy and in the Bank’s monetary policy framework.

While some forward-looking indicators have moved up, many firms cited concerns about demand over next year and pressures from increased competition.

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.