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The Bank of Canada today announced that it is maintaining its target for the overnight rate at 2 per cent. The operating band for the overnight rate is unchanged, and the Bank Rate remains at 2 1/4 per cent.

We develop a model to analyze the link between financial leverage, worker pay structure and the risk of job termination. Contrary to the conventional view, we show that even in the absence of any agency problem among workers, variable pay can be optimal despite workers being risk averse and firms risk neutral.

A multi-country consumer survey investigates why and how much households decreased their consumption in five key sectors after pandemic-related restrictions were lifted in Europe in July 2020. Beyond infection risk and precautionary saving motives, households also reported not missing some consumption items, which may indicate preference shifts and structural changes in the post-COVID-19 economy.

Growth in the global economy has weakened since the January Monetary Policy Report Update, reflecting the effects of a sharp slowdown in the U.S. economy and ongoing dislocations in global financial markets. Growth in the Canadian economy has also moderated.

The war in the Middle East is affecting the Canadian economy in several ways. Inflation will be higher in the near term, but the magnitude and persistence of the increase is uncertain. The net impact on growth is expected to be small.

This article compares different measures of real short-term interest rates for Canada over the period from 1956 to 1995. A new measure for the expected real interest rate is constructed using a proxy for inflation expectations that is based on the properties of past inflation. The history of inflation in Canada suggests that the characteristics of inflation have changed considerably over time. Past inflation can be characterized by three different types of behaviour: an environment in which average inflation is low and shocks to inflation have only temporary effects; an environment of moderate inflation with more persistent disturbances; and an environment of drifting inflation in which shocks have permanent effects on the level of inflation. The proxy for inflation expectations uses a statistical model, called a Markov Switching Model, to take account of changes in the behaviour of inflation over time. It is found that uncertainty about the changing characteristics of inflation behaviour leads to uncertainty about estimates of inflation expectations and thus about measures of real interest rates. Target ranges for keeping inflation low should help reduce the uncertainty about inflation behaviour. The behaviour of inflation and interest rates suggests that the credibility of the Bank of Canada's inflation-control objectives is growing. This should reduce inflation uncertainty and lead to lower nominal interest rates over time.

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Monetary policy in the presence of nominal debt and labour supply heterogeneity creates a policy trade-off: a short-term economic stimulus leads to persistently reduced output over the medium term. Price-level targeting weakens this trade-off and is better able to stabilize inflation and output than inflation targeting.

Results from the spring Business Outlook Survey point to a moderation from previously high levels of domestic and foreign demand for firms in most regions. Investment and employment intentions remain positive.