The Bank of Canada is targeting eight major themes for its policy-related research this year.

The bank says that research “is vital” for it to meet its commitment to excellence in each of its functions: monetary policy, financial system, currency, and funds management. “By asking some fundamental questions and seeking the answers we expand our policy-relevant knowledge,” it says.

There are eight main themes in the research program for 2005 are:

  • renewing the inflation target;
  • adjustment to external developments;
  • productivity and potential output;
  • asset prices;
  • financial system efficiency;
  • financial system stability;
  • operational efficiency, funds management and currency, and;
  • the next generation of bank notes.



By the end of 2006, the bank will need to renew the joint inflation-control agreement with the government. The bank’s research in that area will focus on questions related to the midpoint and the range of the target, as well as the time horizon for returning inflation to target.

Among its other research initiatives, the bank will look at which factors might be inhibiting the efficiency and productivity of the Canadian financial system; how important frictional inefficiencies are to the Canadian economy; and, how clearing and settlement systems could operate more efficiently without compromising safety.

Researchers at the bank use various types of models to examine policy issues from different perspectives, it says. It adds that macroeconomic models of the monetary transmission mechanism are the target of most of the development work. It continues to develop new reduced-form models for economic analysis and forecasting. The bank is also expanding the range of financial models used to conduct research and analysis into financial behaviours, including those of financial market participants and financial institutions.

On another front, the Bank is developing models for analyzing financial infrastructure; in particular, a model to analyze systemically important payment, clearing and settlement systems.

The bank has also initiated a project to assess the extent to which gaps in financial data can be filled for Canadian businesses (financial and non-financial), households, financial markets, and payments, clearing and settlement systems. Priority in filling these gaps will be given to those areas that the bank has identified as priorities for policy research and analysis.