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In addition to its primary role as the country's central bank, the Bank of Canada also acts as the federal government's banker and financial adviser. One of the activities associated with this role as fiscal agent is managing the government's Canadian dollar balances. This function is examined in this article. The main priority is to ensure that the government has sufficient cash to meet its daily needs. This requires careful forecasting and monitoring of the government's daily receipt and expenditure flows, as well as an ongoing borrowing program to refinance maturing debt and to replenish the balances during periods when outflows, on average, exceed inflows. The cost of borrowing to raise cash balances for the government is considerably higher than the interest earned on any balances that are available "on demand." To reduce this net cost, balances in excess of those required for daily needs are invested in "term" deposits that earn a higher rate of interest than that earned on the demand balances. The net cost of holding government balances has also been reduced through the use of cash management bills, which are flexible, short-term borrowing instruments that complement the government's regular weekly issues of 3-, 6- and 12-month treasury bills.

This paper examines the implications of positive news about future asset values that turn out to be incorrect at a later date in an open economy model with banking. The model captures the patterns of bank credit and current account dynamics in Spain between 2000 and 2010. The model finds that the use of unconventional policies leads to a milder bust.

Measures have been taken by the Bank of Canada to increase the transparency of Canadian monetary policy. This paper examines whether the greater transparency has improved financial markets' understanding of the conduct of monetary policy.

While the usefulness of factor models has been acknowledged over recent years, little attention has been devoted to the forecasting power of these models for the Japanese economy. In this paper, we aim at assessing the relative performance of factor models over different samples, including the recent financial crisis.

Recent evidence indicates that the intensity of economic exchange within and across borders is significantly different: linkages are much tighter within, than among, nation-states. These findings, however, do not necessarily imply that borders and separate national currencies represent significant barriers to trade that should be removed, since the evidence is also consistent with the alternative hypothesis, that domestic exchange is more efficient because domestic producers are better able to satisfy the requirements of local consumers, owing to common tastes and institutions and the existence of local information and social networks. Focusing primarily on trade linkages within and between Canada and the United States, the authors review the evidence on the extent to which national borders lessen the intensity of international economic linkages, primarily trade in goods and services, and the effects on domestic welfare. They also examine the evidence on the impact of common currencies on trade and welfare. They determine that, since the empirical models employed to date in this research cannot distinguish between alternative explanations of the evidence, it is not yet possible to draw firm conclusions for policy-making.

This paper examines the role of bank credit in modeling and forecasting business cycle fluctuations, and investigates the international transmission of US credit shocks, using a global vector autoregressive (GVAR) framework and associated country-specific error correction models.

This paper develops a model of firm heterogeneity, technological adoption, and urbanization. In the model, welfare is measured by household real income, and urbanization is measured by population density. I use the model to derive statistics that measure the effect of a new technology on productivity, welfare, and urbanization.

Work on testing for bubbles has caused much debate, much of which has focussed on methodology. Monte Carlo simulations reported in Evans (1991) showed that standard tests for unit roots and cointegration frequently reject the presence of bubbles even when such bubbles are present by construction. Evans referred to this problem as the pitfall of testing for bubbles.

Recent research suggests that quantitative easing (QE) may affect a broad range of asset prices through a portfolio balance channel. Using novel security-level holding data of individual US mutual funds, we establish evidence that portfolio rebalancing occurred both within and across funds.

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Leonard C. Wyon: Canada’s Victorian Engraver

Photography by Gord Carter