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Canada’s inflation-control targets establish a specific medium-term objective for monetary policy.

The Canadian economy continues to adjust to major global developments.

Since the May Report, the international economic environment has continued to improve. Economic activity abroad grew faster than expected, while inflation in the major economies remained subdued.

The COVID-19 pandemic has caused an atypical recession in which some sectors of the economy boomed and others collapsed. This required a unique fiscal policy reaction to both support firms and stimulate activity in sectors with slack. Was fiscal policy able to get where it was needed? Mostly, yes.

This Report presents the Bank of Canada’s assessment of the trend of inflation in Canada and explains the monetary policy actions deemed necessary to keep inflation within the Bank’s inflation-control target range.

This is the second in a series of semi-annual reports designed to increase the transparency and understanding of Canadian monetary policy.

How do banks' interconnections in the euro area contribute to the vulnerability of the banking system? We study both the direct interconnections (banks lend to each other) and the indirect interconnections (banks are exposed to similar sectors of the economy). These complex linkages make the banking system more vulnerable to contagion risks.

In 2005, the Bank of Canada celebrated its 70th anniversary. Since the Bank opened its doors in March 1935, it has evolved into a national institution at the heart of Canada’s economy. We had a lot to celebrate in 2005—particularly our progress over the past 70 yearsand our continuing contribution to the economic and financial well-being of Canadians.

Over the past year, Canada’s economy has outperformed the economies of virtually all the other major industrial countries.

In our analysis of the US productivity slowdown in the 1970s and 2000s, we find that a significant portion of this deceleration can be attributed to a lack of improvement in allocative efficiency across sectors. Our analysis further identifies increased sector-level volatility as a major contributor to this lack of improvement in allocative efficiency.