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Over the past year, Canada’s economy has outperformed the economies of virtually all the other major industrial countries.

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.

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

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

Standard new trade models depict producers as heterogeneous in total factor productivity. In this paper, I adapt the Eaton and Kortum (2002) model of international trade to incorporate tradable intermediate goods and producer heterogeneity in value-added productivity.

Growth in the Canadian economy has been essentially in line with the expectations set out in the Bank’s January 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.

The exponential family, relative entropy, and distortion are methods of transforming probability distributions. We establish a link between those methods, focusing on the relation between relative entropy and distortion.

Six months ago, at the time of the last Monetary Policy Report, the global economic and financial environment was volatile and highly uncertain because of the adverse situation in Asia and the fallout from the Russian debt moratorium.