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Governor Tiff Macklem discusses how monetary policy is working to bring inflation down—and how it has worked to return inflation to target over the last 25 years. He also talks about the limits of monetary policy, and why the right focus is on controlling inflation in the medium term.

Speaking at the Annual Meeting of the Inter-American Development Bank, Bank of Canada Governor Mark Carney called on global policymakers to work towards renewing the “rules of the game” of the international monetary system, while implementing short-term measures, such as a code of conduct for capital flows, to improve the functioning of the current system.

Some suggest the global economy is facing a fourth industrial revolution. Bank researchers discuss the possible implications of digitalization on the economy. This issue also shares insights on the effectiveness of some unconventional monetary policies in a small open economy, how Government of Canada bonds are used throughout their life cycle, as well as how the Big Six Canadian banks choose their funding strategies and why. The final article examines the slow growth in business investment.

The Canadian payments environment has evolved with enhancements in technology, changes in user expectations and new regulatory standards. In response, the existing regulatory framework and core payments infrastructure are being enhanced. This article describes several revisions to the governance and regulation of the payments system as well as plans to update the core payments infrastructure. These initiatives will position the Canadian payments system to more effectively support a modern and vibrant economy by serving the payments needs of Canadians safely and efficiently as the payments industry continues to evolve.

We examine different monetary policy governance structures and discuss the important roles of non-legislated processes and practices. We also provide an update on monetary policy governance at the Bank of Canada and how it has evolved over time.

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.

Understanding what causes the exchange rate to move has been on ongoing challenge for economists. Despite extensive research, traditional macro models of exchange rate determination—with the exception of the Bank of Canada's exchange rate equation—have typically not fared well, motivating economists to explore new ways to model exchange rate movements that incorporate more complex and realistic settings. Within the context of the sharp appreciation of the Canadian dollar in 2003 and 2004, Bailliu and King review the macroeconomic models of exchange rates, as well as the micro-structure studies that highlight the importance of trading mechanisms, information asymmetry, and investor heterogeneity for explaining short-term dynamics in exchange rates. In addition to summarizing the current state of knowledge, they highlight recent advances and identify promising alternative approaches.

Deputy Governor Sylvain Leduc discusses household debt and house prices, the risks they pose to financial stability and the role of the Bank of Canada.

The financial system makes an important contribution to the welfare of all Canadians. The ability of households and firms to confidently hold and transfer financial assets is one of the fundamental building blocks of the Canadian economy.