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The author proposes and evaluates econometric models that try to explain and forecast real quarterly housing expenditures in Canada. Structural and leading-indicator models of the Canadian housing sector are described.

Deputy Governor Sylvain Leduc discusses how upgrading Canada’s core payment systems will contribute to financial stability and help the Bank keep inflation on target.

This paper reviews the range of extraordinary programs launched by the Bank of Canada in response to the pandemic-related financial market disruption. It provides some recommendations for future interventions to ensure the programs are appropriately structured for the financial and economic stresses they are intended to address.

We develop a model to explain a puzzling trend in cash demand in recent years: the value of bank notes in circulation as a percentage of GDP has remained stable despite decreasing cash usage at points of sale owing to competition from alternative means of payment such as credit cards.

Average hourly real wage series from the Labor Productivity and Costs (LPC) program and the Current Employment Statistics (CES) program have evolved very differently over the past decades.

The consumer price index (CPI) is the most commonly used measure to track changes in the overall level of prices. Since it departs from a true cost-of-living index, the CPI is subject to four types of measurement bias—commodity substitution, outlet substitution, new goods and quality adjustment. The author updates previous Bank of Canada estimates of measurement bias in the Canadian CPI by examining these four sources of potential bias. He finds the total measurement bias over the 2005–11 period to be about 0.5 percentage point per year, consistent with the Bank’s earlier findings. Slightly more than half of this bias is caused by the fixed nature of the CPI basket of goods and services.

An effective exchange rate is a measure of the value of a country's currency vis-à-vis the currencies of its most important trading partners. The Bank of Canada has created a new Canadian-dollar effective exchange rate index (CERI) to replace the C-6 index that it currently uses. The CERI uses multilateral trade weights published by the International Monetary Fund and includes the six currencies of countries or economic zones with the largest share of Canada's international trade. As such, it better reflects the recent changes in Canada's trade profile, including the rise in the importance of China and Mexico and the relative decline in importance of Europe and Japan in Canada's international trade. The author describes the methodology and construction of the new index and reviews the advantages it offers over the C-6, particularly the use of multilateral trade weights, the inclusion of trade in services, and the use of more recent trade data.

We study the trading dynamics in an asset market where the quality of assets is private information of the owner and finding a counterparty takes time. When trading of a financial asset ceases in equilibrium as a response to an adverse shock to asset quality, a large player can resurrect the market by buying up lemons which involves assuming financial losses.

There is a close link between prices of equity options and the default probability of a firm. We show that in the presence of positive expected equity recovery, standard methods that assume zero equity recovery at default misestimate the option-implied default probability.