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This article provides an overview of the growth of Canadian-dollar-denominated assets in official foreign reserves. Based on International Monetary Fund data and on internal Bank of Canada analysis, we estimate that the total reserve holdings of Canadian-dollar assets increased from negligible levels before 2008 to around US$200 billion in the third quarter of 2013. We discuss the determinants of this increase, as well as its potential impact on Canadian debt markets, for example, lower yields and therefore reduced financing costs for the Government of Canada, and the possible negative impact on market liquidity.

In the last half-year, the economic expansion in Canada has become well established, supported by low inflation, highly stimulative monetary conditions, and a strong U.S. economy.

The COVID-19 pandemic has caused an atypical recession in which some sectors of the economy boomed and others collapsed. This required a unique fiscal policy reaction to both support firms and stimulate activity in sectors with slack. Was fiscal policy able to get where it was needed? Mostly, yes.

This paper examines the behaviour of the Canadian dollar from 1997 to 1999 to see if there is any evidence of excess volatility or significant overshooting. A small econometric model of the exchange rate, based on market fundamentals, is presented and used to make tentative judgments about the extent to which the currency might have been systematically over- or undervalued.

BoC-GEM, an adaptation of the Global Economy Model, initially developed at the International Monetary Fund and the New York Federal Reserve, is a very useful tool to tackle a broad range of issues pertinent to the current economic context, such as the recent movements in commodity prices and the adjustment of global imbalances. This article describes the structure and functioning of BoC-GEM and details some examples of recent application in the areas of monetary policy and issues in the real economy and questions of financial stability and describes ongoing research into introducing a financial sector into the model.

While inflation has come off its peak, it remains too high. As the economy responds to higher interest rates and as the effects of elevated commodity prices and supply disruptions fade, the Bank expects inflation to fall to about 3% in late 2023, then return to 2% in 2024.

Highlights * Despite some lingering uncertainties on the global scene, developments since the May 1999 Monetary Policy Report have resulted in a firmer tone in the outlook for the world economy and for Canada. * The Canadian economy now appears poised to attain growth in 1999 towards the upper end of the 2 3/4 to 3 3/4 per cent range set out in the May Report. * Trend inflation is still expected to edge up but to remain in the lower half of the Bank's inflation-control target range of 1 to 3 per cent. Information received since early July, when the update to the Monetary Policy Report was completed, continues to point to a generally firmer tone in the outlook for the world economy and for Canada. Nonetheless, lingering uncertainties on the global scene bear watching. In Japan, there are signs that the protracted economic recession may be coming to an end. In Europe, expectations of a pickup in the pace of expansion as the year progresses are becoming more widely held. Economic and financial conditions remain generally positive in those emerging-market economies in Southeast Asia and Latin America that are vigorously pursuing sound domestic policies. In the United States, real GDP rose by an estimated 2.3 per cent in the second quarter—below most expectations. A significant part of the slowdown, however, was attributable to a major inventory adjustment. Growth of real final domestic demand also decelerated, but remained strong at just under 4 per cent, following growth of over 6 per cent in the two previous quarters. Overall, the U.S. economy continues to operate at high levels, thereby heightening concerns about potential inflationary pressures. While inflation at both the retail and producer-price levels appears to be contained, with tight labour markets (employment was up strongly in July) signs of cost pressures have emerged recently, reflecting rising rates of labour compensation and slowing productivity growth. Here in Canada, indicators of domestic demand such as retail and wholesale trade, motor vehicle sales, housing activity, imports, and business investment plans all support a picture of solid expansion through the spring and summer months. Exports, after several quarters of very strong growth, remain at high levels, and economy-wide production data (e.g., monthly GDP at factor cost) through May also indicate a steady, solid pace of expansion. Moreover, world commodity prices have risen somewhat further recently, providing support to Canada’s resource sector. The prices of some key primary commodities produced in Canada (especially energy and base metals) have been among the fastest rising. And as anticipated, there was renewed employment growth in July, notably in full-time, paid jobs. On balance, recent data suggest that real GDP increased by about 3 1/2 per cent (annual rate) in the second quarter—broadly in line with expectations at the time of the July update. The 12-month rate of increase in the core CPI edged up to 1.7 per cent in June. As in the previous two months, the June increase was slightly higher than expected. This is partly because of the more rapid pass-through of the earlier exchange rate depreciation into retail prices. However, with slack still present in the economy, core inflation is expected to remain close to current levels, below the midpoint of the Bank’s 1 to 3 per cent target range, through the balance of 1999. Uncertainty about inflationary pressures in the United States and the possible implications for the stance of U.S. monetary policy, as well as shifts in international investment portfolios (encouraged by improving economic conditions overseas), have resulted in significant movements in financial markets in recent weeks. In July, the U.S. dollar weakened markedly against both the yen and the euro. While the Canadian dollar was softer against its U.S. counterpart for much of the last month, it has strengthened recently, supported by Canada’s low inflation and solid economic expansion and by firmer world commodity prices. Interest rates in Canada remain below those in the United States across all maturities, although the differentials have narrowed since early July.

Since 2009, the G-20 Framework for Strong, Sustainable and Balanced Growth has provided a mechanism for international macroeconomic policy coordination. The Framework has had some successes, including agreement on objectives for fiscal consolidation. However, post-crisis global growth has been neither strong nor balanced. Progress has also been slow in developing credible fiscal consolidation plans in some advanced countries and in increasing exchange rate flexibility in certain emerging economies. A stronger peer review process and enhanced analysis of international spillovers would increase the Framework’s influence on member policies.

The Bank of Canada Act calls on us to "mitigate … fluctuations in the general level of production, trade, prices and employment, so far as may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of Canada." Over time, it has become clear that the best way for us to fulfill this mandate is to keep inflation low, stable, and predictable.

After 10 years of impressive growth, India is now the fourth largest economy in the world. Yet, to date, India's impact on global commodity markets has been muted. The authors examine how India's domestic and trade policies have distorted and constrained its demand for commodities.