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We construct and estimate a structural two-stage model of equilibrium in a market for payments in order to quantify the network externalities and identify the main determinants of consumer and merchant decisions.

Economic activities typically involve coordination among a large number of agents. These agents have to anticipate what other agents think before making their own decisions.

Inflation in Canada is still too high but has declined from its peak. As the effects of higher interest rates continue to spread through the economy, and with declines in energy prices and improved supply chains, inflation is projected to fall to around 3% in the middle of 2023 and reach the 2% target in 2024.

To better understand price-setting behaviour in the Canadian economy, the Bank of Canada's regional offices surveyed a representative sample of 170 firms between July 2002 and March 2003. The authors discuss the reasons behind the survey, the methodology used to develop the questionnaire and conduct the interviews, and summarize the results. The study also assessed several explanations for holding prices steady despite market pressures for a change. The survey findings indicate that prices in Canada are relatively flexible and have become more flexible over the past decade. Price stickiness was generally found to originate in firms' fears of antagonizing customers or disturbing the goodwill or reputation developed with them. A detailed discussion of the results includes a consideration of their implications for monetary policy.

How do firms change their employment decisions when tax benefits for low-earning workers are expanded? Some firms increase employment overall, whereas others replace high-earning workers with low-earning workers, according to German linked employer-employee data.

This paper introduces a new methodology to date systemic financial stress events in a transparent, objective and reproducible way. The financial cycle is captured by a monthly country-specific financial stress index.

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Promissory Notes

The notes featured on the cover measure approximately 21 cm x 8 cm and form part of the National Currency Collection, Bank of Canada.

Photography by Gord Carter, Ottawa

This paper identifies aggregate financial shocks and quantifies their effects on business investment based on an estimated DSGE model with firm-level heterogeneity. On average, financial shocks contribute only 3% of the variation in U.S. public firms’ aggregate investment.

While inflation has come off its peak, it remains too high. As the economy responds to higher interest rates and as the effects of elevated commodity prices and supply disruptions fade, the Bank expects inflation to fall to about 3% in late 2023, then return to 2% in 2024.

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.