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In this article, the authors build on the framework used in the Bank of Canada's Financial System Review to assess the evolution of household indebtedness and financial vulnerabilities in response to changing economic conditions. To achieve this, they first compare two microdata sets generated by Ipsos Reid's Canadian Financial Monitor and Statistics Canada's Survey of Financial Security. They find that the surveys are broadly comparable, despite methodological differences. This enables them to use the combined information content for the identification of the threshold value of the debt-service ratio (DSR). The article then presents an innovative framework that uses household-level microdata to simulate changes in the distribution of the DSR under various stress scenarios. The authors show how this framework can be used by analyzing the effects of two different scenarios on the distribution of the debt-service ratio and the impact on vulnerable households. This tool will enable researchers to refine their analyses of current risks to the financial health of Canadian households. The article concludes with comments on future directions for refining the Bank's analyses of household sector risk.

Using a structural model, we study the economic consequences of the COVID-19 shock. The uneven consequences, such as higher unemployment among young households, amplify the negative implications for the macroeconomy, household vulnerabilities and consumption inequality. Government support programs have stimulated the economy and lowered inequality and medium-term vulnerabilities.

Remarks by David Longworth, Deputy Governor of the Bank of Canada to the Canadian Association for Business Economics

The Canadian financial system comprises financial markets, financial institutions, and the clearing and settlement systems.

Ron Morrow, Executive Director of Payments, Supervision and Oversight, talks about innovations in the payments ecosystem. He also highlights the Bank’s new role as supervisor of payment service providers.

In this issue, Bank researchers discuss inflation dynamics and global trade following the 2007–09 financial crisis. Other articles explore changes to the governance and regulation of the Canadian payments system and outline the banking services provided by the Bank of Canada. Finally, the results of the 2013 Methods-of-Payment Survey are presented.

It's been a difficult year for many sectors of the Alberta economy. Certainly, the severe drought hurt many western farmers, and investment in the energy sector was held back by low oil and gas prices. In addition, the slump in the telecom sector has affected Calgary.

We study liquidity requirements in a framework with fire sales. The framework nests three common pricing mechanisms and produces the same observables. Absent risk-sharing considerations, the equilibrium is efficient with cash-in-the-market pricing; a liquidity requirement is optimal with second-best-use pricing; and a liquidity ceiling (i.e., a cap on liquid assets) is optimal with adverse selection.

The author examines aspects of Canada's trade performance in light of the major trends seen in world trade over the past several decades. Canada has become more integrated with the world economy, and this openness is evident from its greater export orientation, its heavier reliance on imported inputs, and more exposure to foreign competition in its domestic markets. The author analyzes the composition of Canadian trade and the trend towards increasing two-way trade in similar products. He also looks at the increasing integration of trade within regions, which for Canada has meant a greater concentration of exports with the United States.