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Suppose that the dynamics of the macroeconomy were given by (partly) random fluctuations between two equilibria: "good" and "bad."

Conditions in the international financial system have improved considerably since June in response to the forceful actions taken by policy-makers around the world.

FSR Highlights - December 2009

Until recently, there have been few efforts to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default. To help fill this gap, the Bank of Canada’s Credit Rating Assessment Group (CRAG) has developed a comprehensive database of sovereign defaults posted on the Bank of Canada’s website.

We document the outcome of an options decimalization pilot on Canada’s derivatives exchange. Decimalization improves measures of liquidity and price efficiency. The impact differs by the moneyness of an option and is greatest for out-of-the-money options.

This issue features three articles that present research and analysis by Bank of Canada staff. The first updates previous Bank estimates of measurement bias in the Canadian consumer price index; the second uses a new term-structure model to analyze the relationship between the short-term policy rate and long-term interest rates; and the third examines indicators of balance-sheet risks at financial institutions in Canada.

Cover page

French Provincial Issues in Canada

The coins pictured on the cover are part of the National Currency Collection, Bank of Canada.
Photography by Gord Carter, Ottawa.

We investigate the macroeconomic impacts of mothballed businesses—those that closed temporarily—on sectoral equilibrium prices after a negative demand shock. Our results suggest that pandemic fiscal support for temporary closures may have eased inflationary pressures.

Cover page

Irish Gun Money

The coins pictured on the cover are part of the National Currency Collection of the Bank of Canada.
Photography by Gord Carter

We draw on the Canadian experience to examine how monetary and macroprudential policies interact and possibly complement each other in achieving their respective price and financial stability objectives.

Can macroprudential foreign exchange (FX) regulations on banks reduce the financial and macroeconomic vulnerabilities created by borrowing in foreign currency? To evaluate the effectiveness and unintended consequences of macroprudential FX regulations, we develop a parsimonious model of bank and market lending in domestic and foreign currency and derive four predictions.