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This issue features four articles that present research and analysis by Bank staff. The first focuses on reforming the international monetary system; the second on the role of collateral and haircut policy in central bank lending; and the third on the extraction of information from the Business Outlook Survey using principal-component analysis. The fourth reviews studies that model the counterfeiting of bank notes.

The authors conduct a counterfactual simulation of the proposed rules under the new Basel Capital Accord (Basel II), including the revised treatment of expected and unexpected credit losses proposed by the Basel Committee in October 2003.

We evaluate, both empirically and theoretically, the spillover effects that debt-financed fiscal policy interventions of the United States have on other economies. We consider a two-country model with international portfolio rebalancing effects. We show that US fiscal expansions would increase global long-term rates and hinder economic activity in the rest of the world.

We investigate the macroeconomic determinants of corporate spreads using a no-arbitrage technique. Structural shocks are identified by a New-Keynesian model. Treasury bonds are priced in an affine model with time-varying risk premia.

A put option is a financial contract that gives the holder the right to sell an asset at a specific price by (or at) a specific date. A put option can therefore provide its holder insurance against a large drop in the stock price. This makes the prices of put options an ideal source of information for a market-based measure of the probability of a firm’s default.

Cover Page

Canada's First Coinage

Photography by Gord Carter, Ottawa.

Policy-makers around the world met the intensification of the global financial crisis at the end of 2008 with a forceful response aimed at restoring confidence in the global financial system, promoting the flow of credit, and supporting economic activity.

FSR Highlights - June 2009

Erratum: Legends for Chart 13 on page 15 of the June 2009 issue should read: Argentina (right scale), Mexico (left scale). See revised chart.

We analyze the evolution of macroeconomic uncertainty in the United States, based on the forecast errors of consensus survey forecasts of different economic indicators. Comprehensive information contained in the survey forecasts enables us to capture a real-time subjective measure of uncertainty in a simple framework.

In this paper, we define a financial institution’s contribution to financial systemic risk as the increase in financial systemic risk conditional on the crash of the financial institution. The higher the contribution is, the more systemically important is the institution for the system.

The Bank expects a sharp rebound in economic activity in the reopening phase of the recovery, followed by a more prolonged recuperation phase.