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This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.

This paper looks at the implications for monetary policy of the widespread adoption of artificial intelligence and machine learning, which is sometimes called the “fourth industrial revolution.”

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.

The Financial System Review concludes that the overall level of risk to Canada’s financial system is largely unchanged from six months ago. While household vulnerabilities have moved higher, the ongoing economic recovery in Canada means that the overall risk remains the same. The Bank highlights three vulnerabilities in the financial system: the elevated level of household indebtedness, imbalances in some regional housing markets and the fragility of liquidity in fixed-income markets.

In the year just ended, the global economy faced a number of exceptional challenges, reflecting a wide range of economic, financial, and geopolitical risks and uncertainties. These included the fallout from the September 2001 terrorist attacks, corporate accounting scandals, stock market volatility, and developments in the Middle East. Despite this global backdrop, the Canadian economy outperformed virtually all other industrial economies, growing by about 3 1/4 per cent and creating 560,000 jobs, while inflation expectations remained well anchored to the Bank of Canada’s 2 per cent inflation-control target.

Perceived income risks reported in a survey of consumer expectations are more heterogeneous and, on average, lower than indirectly calibrated risks based on panel data. They prove to be one explanation for why a large fraction of households hold very little liquid savings and why accumulated wealth is widely unequal across households.

At the Bank of Canada, we have worked hard over the past several years to define our goals and our methods for achieving them. We have continued to strengthen our monetary policy framework, and we have established priorities in all areas of our operations to help us meet our strategic objectives. In 2002, the Bank set out a medium-term plan for the period 2003–05. The plan’s clearly defined policy frameworks and priorities were critical in guiding our analysis and our decisions in 2003, a year in which Canadians across the country were affected by a number of severe and unanticipated events.

Deputy Governor Lawrence Schembri discusses the historical evolution and future prospects for Canadian exports.

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Gas Cards

All gas cards pictured here are part of the National Currency Collection of the Bank of Canada.

The world needs an international institution to promote a new monetary order—a well-functioning, market-based global financial system. This will be the subject of my remarks today.