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Markets for securitized assets were characterized by high liquidity prior to the recent financial crisis and by a sudden market dry-up at the onset of the crisis. A general equilibrium model with heterogeneous investment opportunities and information frictions predicts that, in boom periods or mild recessions, the degree of adverse selection in resale markets for securitized assets is limited because of the reputation-based guarantees by asset originators.

Responses to the autumn survey point to less optimism among firms than in the summer survey. Indicators of future business activity, capacity constraints and price pressures have all moved down from the levels recorded in the previous survey.

Businesses are positive about the economic outlook. Hiring and investment intentions are strong, while future sales are expected to increase at about the same pace as in the past 12 months.

Supplemental questions on the appreciation of the Canadian dollar - Spring 2006

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.

The autumn Business Outlook Survey shows that firms’ expectations continue to diverge as they gradually adjust to an environment of weaker commodity prices and a lower Canadian dollar. The overall sales and investment outlook improved, owing in part to continued support from U.S. demand. However, business sentiment remains weak for firms directly and indirectly tied to the resource sector.

The FSR reports on developments and trends in financial systems here and abroad, summarizes recent research by Bank staff on financial sector policies, and promotes discussion of how to strengthen our financial system. In short, the goal of the FSR is to improve financial system efficiency and stability.

Indeed, the global financial crisis of the past two years has presented unique, stressful challenges that have forced us all to assess what has worked well and what needs to change. Today, I would like to review some of the critical thinking around these issues, primarily from the perspective of our work at the Bank of Canada.

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.

The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 3 per cent.

In his speech, Senior Deputy Governor Tiff Macklem discusses the G-20 reform agenda to achieve durable financial stability and sustainable and balanced economic growth.