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Using the quantum Monte Carlo algorithm, we study whether quantum computing can improve the run time of economic applications and challenges in doing so. We apply the algorithm to two models: a stress testing bank model and a DSGE model solved with deep learning. We also present innovations in the algorithm and benchmark it to classical Monte Carlo.

Financial sector bailouts, while potentially beneficial during a crisis, might lead to excessive risk taking if anticipated. Taking expectations and aggregate risk implications into account, we show that bailouts can be welfare improving, but only if capital adequacy constraints are sufficiently tight.

Should a CBDC be more like cash or bank deposits? An interest-bearing, cash-like CBDC not only makes payments more efficient but also increases total demand. This has positive effects on other transactions, inducing more deposit taking and lending and, thus, bank intermediation.

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.

This paper provides a comprehensive overview of Canada’s Large Value Transfer System (LVTS).

We study settlement fails for trades in the Government of Canada bond market. We find that settlement fails do not occur independently. Using a novel and comprehensive dataset, we examine three drivers of fails.

Many central banks are contemplating whether to issue central bank digital currency. This piece explores the implications as well as potential motivators of such a step.

This paper studies the effects of foreign exchange (FX) interventions in a two-region model where governments issue both short- and long-term bonds. We find that the term premium channel dominates the trade balance channel in our calibrated model. As a result, the conventional beggar-thy-neighbor effects of interventions are overturned.

The Bank’s internal credit risk assessment abilities are regularly enhanced. In this note, we present a recent innovation that extends the set of market-based indicators used in the credit risk assessment of financial counterparties.

We build a network formation game of firms with trade flows to study the adoption and usage of a new digital currency as an alternative to correspondent banking.