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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.

Foreign direct investment inflows are positively related to growth across developing countries—but so are savings in excess of investment. I develop an explanation for this well-established puzzle by focusing on the limited availability of consumer credit in developing countries together with general equilibrium effects.

Governor Tiff Macklem discusses key issues involved in the Governing Council’s deliberations about the monetary policy decision.

This article reviews arguments in the literature for and against price-level targeting, focusing on its costs and benefits compared with inflation targeting. Benefits of price-level targeting include the effect on forward-looking inflation expectations; the ability to substitute for commitment by a central bank to its future policies; lessening forecast errors; better economic performance in response to real shocks because of lower wage indexation; and a reduction in the problem of the zero lower bound on nominal interest rates.

A large-scale reduction in mortgage principal can strengthen a recovery, support house prices and lower foreclosures. The nature of the intervention shapes its impact, which rests on how resources are redistributed across households. The availability of bankruptcy on unsecured debt changes the response to large-scale mortgage relief by reducing precautionary savings.

Several factors help set gasoline prices: the costs of crude oil, refining, transporting, retailing and marketing gas, as well as taxes.

Cover page

Irish Gun Money

The coins pictured on the cover are part of the National Currency Collection of the Bank of Canada.
Photography by Gord Carter

This issue features four articles that present research and analysis by Bank staff. The first focuses on reforming the international monetary system; the second on the role of collateral and haircut policy in central bank lending; and the third on the extraction of information from the Business Outlook Survey using principal-component analysis. The fourth reviews studies that model the counterfeiting of bank notes.

The Canadian economy continues to adjust to US tariffs and trade uncertainty, with economic activity on a lower path than before tariffs were imposed. The war in the Middle East is also affecting the outlook. Inflation is projected to rise in the near term before easing toward 2% in early 2027, while economic growth remains modest.

Central banks continuously strive to improve how they communicate to financial markets and the public in order to increase transparency. For this reason, many central banks have begun to include guidance on the policy rate in the form of forward-looking statements in their communications. This article examines the debate over the usefulness of providing such statements from both theoretical and empirical standpoints. The evidence presented here suggests that the use of forward-looking statements in Bank of Canada communications has made the Bank more predictable, but not necessarily more transparent.