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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.

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

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

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.

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.

The author investigates the quantitative importance of the expenditure-switching effect by developing and estimating a structural sticky-price model nesting both producer currency pricing (PCP) and local currency pricing (LCP) settings.

We model non-bank entry into fixed-income markets and state-dependent liquidity. Non-bank financial institutions improve liquidity more during normal times than in stress. Banks may become less reliable to marginal clients, exacerbating the difference in liquidity between normal and stressed times. Central bank lending during stress may limit this harmful division.

In Canada, temporary workers account for 14 per cent of jobs in the non-farm business sector, are present in a range of industries, and account for 40 per cent of the total job reallocation. Yet most models of job reallocation abstract from temporary workers.

We estimate the effects of economic uncertainty on time use and discuss its macroeconomic implications. We develop a model to demonstrate that substitution between market and non-market work provides an additional insurance margin to households, weakening precautionary savings and labour supply and lowering aggregate demand, ultimately amplifying the contractionary effects of uncertainty.