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This article describes the Bank of Canada’s version of the Global Economy Model structured to incorporate an active banking system that features an interbank market and cross-border lending. After describing the new model, the authors use it to examine the responses of selected U.S. and Canadian macroeconomic variables to a “credit crunch” in the United States and also to study the impact of changes in the regulatory limits to bank leverage in Canada. They also discuss the relative merits of a monetary policy framework based on inflation targeting and one based on price-level targeting in the presence of shocks to the U.S. and Canadian banking sectors.

Cover page

Decimalization in Great Britain

The Victorian florin on the cover is part of the National Currency Collection of the Bank of Canada.

In a laboratory experiment, we ask participants to predict inflation using three different policy regimes: inflation targeting—with and without greater communication of the target—average inflation targeting and price level targeting. We use participants’ predictions to compare the level and stability of inflation under each regime.

The Canadian financial system has fared relatively well through this crisis, thanks to effective regulation and prudent practices that have worked like sandbags to protect our financial system from the storms in today's global economy.

We use retail payment data in conjunction with machine learning techniques to predict the effects of COVID-19 on the Canadian economy in near-real time. Our model yields a significant increase in macroeconomic prediction accuracy over a linear benchmark model.

We address some of the key questions that arise in forecasting the price of crude oil. What do applied forecasters need to know about the choice of sample period and about the tradeoffs between alternative oil price series and model specifications?

Terms-of-trade shocks are known to be key drivers of business cycles in open economies. This paper argues that terms-of-trade shocks were also important for house price fluctuations in a panel of developed countries over the 1994–2015 period.

It has been a difficult year. The financial turmoil that began mid-2007 deteriorated into a full-blown global financial crisis through 2008. While the resilience and soundness of the Canadian financial system were in many respects exceptional, the scale of the financial crisis and the subsequent global recession had an increasing impact by year’s end on our financial system and our economy.

Canada’s financial system remains resilient. Over the past year, households, businesses, banks and non-bank financial institutions have continued to proactively adjust to higher interest rates. But this adjustment is not yet over and continues to present risks to financial stability. Key risks include those related to debt serviceability and asset valuations.

Deputy Governor Tim Lane discusses the global economic outlook and the integral – and historic – role of transport and logistics in building Canada’s prosperity.