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The authors measure the economies of scale of Canada's six largest banks and their costefficiency over time. Using a unique panel data set from 1983 to 2003, they estimate pooled translog cost functions and derive measures of relative efficiency and economies of scale.

Severe disruptions in the financial markets, as observed during the 2008 global financial crisis or the COVID-19 pandemic, can impair the stability of the entire financial system and worsen macroeconomic downturns.

This paper investigates the implications of endogenous trade participation for international business cycles, trade flow dynamics and exchange rate pass-through when price adjustments are staggered across firms.

G-20 leaders have agreed on comprehensive financial sector reforms to reduce the risk of future crises and to strengthen banking systems. Raising the amount and quality of capital and liquidity that financial institutions must carry is a central component of the reforms. The G-20 is developing a set of proposals for agreement by leaders at […]

Coletti and Lalonde compare inflation targeting and price-level targeting in the context of a small open economy subject to sizable terms-of-trade shocks. The authors summarize recent research that compares the ability of price-level targeting and inflation targeting to stabilize the macroeconomy when confronted with shocks similar to those experienced by Canada in recent years. Their preliminary results suggest that price-level targeting may represent a feasible alternative to traditional inflation targeting. Their article also provides insight into the direction of current research in this area at the Bank.

Options prices are being increasingly employed to extract market expectations and views about monetary policy. In this paper, eurodollar options are monitored to examine the evolution of market sentiment over the possible future values of eurodollar rates. Risk-neutral probability functions are employed to synopsize the information contained in the prices of euro/dollar futures options. Several […]

We propose a macroeconomic model in which adverse selection in investment drives the amplification of macroeconomic fluctuations, in line with prominent roles played by the credit crunch and collapse of the asset-backed security market in the financial crisis.

Dynamic general-equilibrium models (DGEMs) are being increasingly used in macroeconomic research. In this article, the author describes the main features of these models and outlines their contribution to economic research performed at the Bank of Canada. He notes that the basic principle of DGEMs is that the modelling of economic activity, even on a scale as large as the economy of a country, should start with a series of microeconomic problems (at the scale of individuals), which, once resolved, are aggregated to represent the macroeconomic reality described by the model.

This section of the Financial System Review examines the recent performance of the Canadian financial system and the factors, both domestic and international, that are influencing it.