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There have been positive developments in the global financial system since the June Financial System Review, in part reflecting some encouraging signs about the global economy. At the same time, significant vulnerabilities remain. The Governing Council judges that the overall risk to the stability of Canada’s financial system has decreased from “high” to “elevated” over the past six months.

There is a large body of literature that studies the relationship between financial structure (that is, the degree to which the financial system is either market- or intermediary-based) and long-run economic growth.

This paper aims at showing heterogeneity in the degree of exchange rate pass-through to import prices in major advanced economies at three different levels: 1) across destination markets; 2) across types of exporters (distinguishing developed economy from emerging economy exporters); and 3) over time.

This paper surveys the literature on the zero bound on the nominal interest rate. It addresses questions ranging from the conditions under which the zero bound on the nominal interest rate might occur to policy options to avoid or use to exit from such a situation. We discuss literature that examines historical and country evidence, and literature that uses models to generate evidence on this question.

The global economy is forecast to grow at around 3% over the projection horizon, in line with its current pace. Inflation remains above central bank targets.

It is widely understood that the real price of globally traded commodities is determined by the forces of demand and supply. One of the main determinants of the real price of commodities is shifts in the demand for commodities associated with unexpected fluctuations in global real economic activity.

In this issue of the Financial System Review, the Bank of Canada’s Governing Council judges that, although the Canadian finan­cial system is currently on a sound footing, risks to its stability remain elevated and have edged higher since December 2010.

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 Bank of Canada's commitment is to contribute to the economic well-being of Canadians. This means conducting monetary policy so that it fosters sustained economic growth - by creating conditions that favour rising output, employment, and incomes, and a stable macroeconomic environment.

Governor Stephen S. Poloz talks about the adjustments that savers and companies need to make in response to low interest rates, and economic policies that can help.