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Central banks may face challenges in achieving their price stability goals when financial stability risks are present. There is, however, considerable heterogeneity among central banks with respect to how they manage these potential trade-offs.

The uncertainty around future changes to the Federal Reserve target rate varies over time. In our results, the main driver of uncertainty is a “path” factor signaling information about future policy actions, which is filtered from federal funds futures data.

Policy-makers in the United States over the past 15 to 20 years seem to have been cautious in setting policy: empirical estimates of monetary policy rules such as Taylor's (1993) rule are much less aggressive than those derived from optimizing models.

This paper shows that real effective exchange rate (REER) regressions, the standard approach for estimating the response of aggregate exports to exchange rate changes, imply biased estimates of the underlying elasticities. We provide a new aggregate regression specification that is consistent with bilateral trade flows micro-founded by the gravity equation.

We study how the tightening of US immigration policy affects the Canadian economy and American workers. After the reduction in H-1B visa admissions in 2017, more immigrants came to Canada, and Canadian firms expanded their employment, sales and exports. The close trade link between the United States and Canada dampens the benefit American workers derive from this policy change.

We create a theoretical model of central bank asset purchases. The model helps explain how, in a crisis, these purchases ease pressures on investment dealers.

This study, which draws on a variety of research on price dynamics in Canada, examines some hypotheses that might explain the poor quality of recent inflation forecasts based on the conventional Phillips curve.

This special issue of the Review, “Lessons from the Financial Crisis,” examines the recent research on the role of liquidity in the financial system and on the public policy responses that aimed to restore stability to the financial system during the crisis and to foster economic recovery.

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The book is part of the National Currency Collection, Bank of Canada.
Photography by Gord Carter, Ottawa.

The four essays published here provide a useful overview for anyone interested in understanding the issues and policy environment surrounding financial system stability.