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This paper studies the effects of financial development, taking into account both formal and informal financing. Using cross-country firm-level data, we document that informal financing is utilized more by rich countries than poor countries.

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 Bank of Canada has played an integral role in Canadian society for 70 years. When the Bank opened its doors in the spring of 1935, this country was struggling to define itself and to survive the economic and social turmoil of the Great Depression. Like Canada’s economy, its central bank has evolved and grown over the years. It has faced critical challenges and embraced change. But the Bank’s mandate has not changed. It is now, as it was then, to provide an effective, national monetary authority for Canada.

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.

Should managers be paid in stock options if they provide stock-market participants with information about the firm? This paper studies how firm owners trade off the benefit of stock-price incentives and better-informed market participants against the cost of potential stock-price manipulation.

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

At the time of the November 2000 Monetary Policy Report, although signs of the anticipated slowing of the U.S. economy were becoming apparent, the momentum of the global economy was considered strong.

The year that just passed posed many challenges for all Canadians. The slowdown in the global economy became more pronounced as the year went on, and this affected households, businesses, and governments alike. The tragedy of 11 September compounded the economic difficulties and issues facing us all. Through this period of rapidly changing circumstances, the Bank met its responsibilities by responding quickly and vigorously to events in order to underpin confidence and support the economy.

In the April Monetary Policy Report, the Bank noted that inflation was well above its 2 per cent target and that short-term inflation expectations had edged up.

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