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We use rich microdata to measure home equity extraction in Canada and track its evolution over time. We find home equity extraction has been rising in recent years and has likely contributed materially to dynamics in household spending.

Quarterly Financial Report - Second Quarter 2025 - For the period ended June 30, 2025, unaudited

The Bank of Canada is changing two of its operational procedures relating to the Large Value Transfer System (LVTS), effective 2 April 2001.

This paper analyzes the optimal quantity of central bank reserves in an economy where reserves and other financial assets provide liquidity benefits. Using a static model, I derive a constrained Friedman rule that characterizes the socially optimal level of reserves, demonstrating that this quantity is neither necessarily large nor small but depends on the marginal benefits of reserves relative to alternative safe assets.

Highlights * The pace of economic activity in the United States remains strong, exceeding earlier expectations. * With the stronger momentum of external demand, the Bank now expects Canada's real GDP growth in 2000 to be in the upper half of the 2.75 to 3.75 per cent range projected in the last Monetary Policy Report. * Core inflation was below expectations in November, partly because of price discounting on certain semi-durables. * The Bank expects core inflation to increase to 2 per cent in the first quarter of 2000. * Because of higher energy prices, the rate of increase in total CPI is expected to rise to close to 3 per cent early in the year. * Developments during the last three months underscore the risks to Canada's economic outlook highlighted in the last Report : stronger momentum of demand for Canadian output from both domestic and external sources and potential inflationary pressures in the United States. Information received since 14 January, when the update to our November Monetary Policy Report was completed, continues to point to a strengthening outlook for the world economy and for Canada. In the United States, real GDP again exceeded expectations—rising at an annual rate of 5.8 per cent in the fourth quarter. While some price and cost pressures are evident in the United States, strong productivity growth has thus far held unit labour costs down. Because of the rapid expansion of demand above the growth of potential capacity, however, and the associated inflation risks, the Federal Reserve increased its federal funds rate by 25 basis points to 5.75 per cent on 2 February. Although trend inflation remains low in the industrial countries, a number of other major central banks have also raised their policy rates in the last couple of weeks because of concern about future inflation pressures, given strengthening demand. The buoyancy of external demand, particularly that coming from the United States, continues to show in our latest merchandise trade numbers. Export growth in November remained strong, with the overall trade balance in large surplus. World prices for our key primary commodities also continue to firm in response to rising global demand. On the domestic side, the latest information on demand and production points to continued robustness. Real GDP (at factor cost) rose 0.6 per cent (4.6 per cent year-over-year) in November, and employment continued to grow strongly through year-end and into January. Other indicators, including the latest data on the monetary aggregates, support this strong economic picture. The Bank now expects real GDP growth in 2000 to be near the top of the 2.75 to 3.75 per cent range projected in November. Our core measure of inflation was 1.6 per cent (year-over-year) in December, slightly below expectations, partly because of temporary discounts on certain items. Core inflation is still expected to move up to the midpoint of the Bank's 1 to 3 per cent target range in the first quarter. Over the same period, the total CPI will likely rise to close to 3 per cent because of the recent sharp step-up in energy prices but is still expected to come down towards the core rate during the course of 2000 as energy prices moderate. The Bank of Canada raised its Bank Rate by 25 basis points to 5.25 per cent on 3 February. The factors behind this decision included the strong momentum of demand in Canada from both external and domestic sources, the importance of approaching full capacity in a prudent way, and the risk of a spillover of potential inflation pressures from the United States.

It's been a year since I last spoke in Halifax, and a lot has changed since then. We've witnessed some extraordinary events, both in Canada and around the world. On the whole, Canada's economy has withstood the turmoil quite well. The impact of some more recent events is not yet clear.

Today, I'd like to discuss some of the crucial issues that we have been dealing with during this period. I'll begin with a brief overview of some key events that have led to the turbulence that continues to upset financial markets and that greatly contributed to the remarkably wide credit spreads that we now witness.

Unlike the 2008–09 global financial crisis, the onset of the COVID-19 crisis did not raise stress levels in Canada’s Large Value Transfer System. Swift changes to the Bank of Canada’s collateral policy and its large-scale asset purchase programs likely eased liquidity pressures in the system.

The global economic recovery is entering a new phase. In advanced economies, temporary factors supporting growth in 2010 - such as the inventory cycle and pent-up demand - have largely run their course and fiscal stimulus will shift to fiscal consolidation over the projection horizon.

The Bank of Canada strongly welcomes the decisive actions announced today by the U.S. authorities. These significant and timely measures are part of the implementation of the G7 Action Plan agreed last Friday.