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We study how the distribution of information supply by the news media affects the macroeconomy. We find that media coverage focuses particularly on the largest firms, and that firms’ equity financing and investment increase after media coverage. But these equity and investment responses are largest among small, rarely covered firms. Our quantitative studies highlight that the aggregate effects of media coverage depend crucially on how that coverage is allocated.

The proportion of assets held by the average Canadian firm in the form of cash has increased steadily since the early 1990s, and is now roughly twice as large as in 1990. The literature has established that the cash-holding behaviour of firms is highly correlated with financial constraints and firm characteristics.

The Canadian financial system remains resilient, but vulnerabilities have become more complex and risks have grown. The Bank is carefully watching households’ high levels of mortgage debt, as well as the risks associated with a price correction in Canada’s housing market.

Growth in the Canadian economy is projected to reach 2.8 per cent this year before slowing to 2.0 per cent next year and 1.6 per cent in 2019.

Since the Bank of Canada adopted inflation targeting in 1991, it has focused on a measure of core inflation as a shorter-term guide for monetary policy. When the targets were renewed in 2001, the Bank adopted CPIX as its measure of core inflation because of the advantages it offered. Leflèche and Armour review the experience with CPIX and whether the criteria used to select it in 2001 still favour the measure today. They describe the various measures of core inflation monitored by the Bank and evaluate them on the basis of the volatility of the components, the volatility of the core measures themselves, absence of bias relative to total CPI, predictive power, and certain practical criteria, including timeliness and credibility. They conclude that CPIX still satisfies all the empirical and practical criteria.

Economic activities typically involve coordination among a large number of agents. These agents have to anticipate what other agents think before making their own decisions.

BIS interbank lending data show that the Great Recession generated large and persistent changes in the international interbank lending positions of various countries. The main objective of this study is to understand the role of changes in international interbank credit flows in transmitting shocks across borders.

Canada’s financial system is resilient. Overall, households, businesses, banks and non-bank financial intermediaries successfully weathered the pandemic, a period of elevated inflation, and sharp increases in interest rates. But the trade war currently threatens the Canadian economy and poses risks to financial stability.

Existing home sales’ share of Canada’s economic pie has been rising in recent years, and variation around this trend has resulted in outsized contributions to changes in real gross domestic product (GDP). In this context, we use a cointegration framework to estimate the level of resale activity across the Canadian provinces that is supported by fundamentals—namely, full-time employment, housing affordability and migration flows—to help look through the volatility.

Risk assessment models are an important component of the Bank’s analytical tool kit for assessing the resilience of the financial system. We describe the Framework for Risk Identification and Assessment (FRIDA), a suite of models developed at the Bank of Canada to quantify the impact of financial stability risks to the broader economy and a range of financial system participants (households, businesses and banks).