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During the past six months, global economic uncertainties have intensified, largely as a result of developments in emerging-market economies.

This paper introduces and estimates a structural model of the Canadian primary market for government debt. We assess the role of dealer exit in this market as a key reason for increased, yet irregular, customer entry and quantify the benefits of greater customer competition against the costs of higher market volatility.

Growth in the global economy began to slow in the fourth quarter of 2007 and the first quarter of 2008. This reflected the effects of the slowdown in the U.S. economy and ongoing dislocations in global financial markets.

This is the second in a series of semi-annual reports designed to increase the transparency and understanding of Canadian monetary policy.

At the time of the November 2000 Monetary Policy Report, although signs of the anticipated slowing of the U.S. economy were becoming apparent, the momentum of the global economy was considered strong.

In the last half-year, the economic expansion in Canada has become well established, supported by low inflation, highly stimulative monetary conditions, and a strong U.S. economy.

In the April Monetary Policy Report, the Bank noted that inflation was well above its 2 per cent target and that short-term inflation expectations had edged up.

There have been a number of significant economic and financial developments since the time of the July Monetary Policy Report Update.

At the time of last November’s Monetary Policy Report, two issues dominated the analysis: the global economic slowdown and the fallout from the September terrorist attacks.

Over the last six months, most countries have continued to register strong economic growth.