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This issue of the Financial System Review reflects the Bank’s judgment that the high level of household indebtedness and housing market imbalances remain the most important vulnerabilities. While these vulnerabilities are still elevated, improving economic conditions and recent changes to housing policy should support an easing of these vulnerabilities over time. A third vulnerability highlighted in the FSR concerns cyber threats and the interconnectedness of the financial system.

We assess the usefulness of various measures of core inflation over the COVID-19 pandemic. We find that Cpi-trim and CPI-median provided the best signal of underlying inflation. The favourable performance of these measures stems from their lack of reliance on historical experience, an especially valuable feature in unprecedented times.

Firms anticipate stronger demand as pandemic conditions improve, according to results from the Business Outlook Survey in the third quarter of 2021. However, many businesses face supply constraints that will limit their sales and put upward pressure on their costs. Together, these demand pressures and supply challenges are driving widespread plans to invest, hire staff and increase prices.

The supply of treasury bills has fallen considerably since 1995, reflecting a decline in the financing needs of the Canadian government and a change in its debt-management strategy. This has had a major impact on different segments of the money market. Among the various implications of this development, the authors point out the decrease in turnover and, hence, liquidity in the treasury bill market since 1995, as well as high rates of growth in the market for short-term interest rate derivatives and for short-term asset-backed securities.

This note investigates the relationship between crude oil prices and investment in the energy sector. We employ a set of vector autoregression (VAR) models (unconstrained VAR, vector error-correction and Bayesian VAR) to formalize the relationship between the West Texas Intermediate (WTI) benchmark and fixed-asset cash spending in the oil and gas extraction and support activities sector of the Canadian economy.

The Canadian corporate bond market has experienced a renaissance, in recent years, against a background of low inflation, reduced public borrowing, and the lowest levels of long-term interest rates in a generation. The authors examine the influences shaping the market and also compare the Canadian market with those of other countries. The increased level of activity in the market has been accompanied by the development of new products and by greater investor interest in instruments with higher returns and higher credit risk. A more dynamic Canadian corporate bond market is a welcome development since it offers borrowers an alternative source of funds, especially companies that have typically relied on the banking system and on the U.S. corporate bond market for financings involving higher levels of credit risk.

Canadian economic growth has slowed, reflecting the disruptive effects of US tariffs and a decline in population growth. Exports and business investment have slumped. After being close to 2% for several months, CPI inflation was 2.4% in September.

News media present competing interpretations of what breaking news implies for the macroeconomy. Recent examples include news reporting on high inflation and yield curve inversions. Do these narratives shape macroeconomic sentiment? In this paper, we highlight the importance of narratives using evidence linking traditional media and social media.

Canadian economic activity has slowed considerably because of the trade conflict but is showing signs of resilience. While inflation is close to 2%, underlying inflation has risen to about 2½%.

As we celebrate the 400th anniversary of the founding of Quebec, I thought it would be fitting for me, as a central banker, to take a look at how money has evolved over part of the past four centuries.