Bank of Canada outlines research program

The Bank of Canada plans to look at whether regulation is hampering capital market efficiency as part of its ongoing research program.

The central bank says that research is a key theme of its Medium-Term Plan (2003-2005). “Research is vital for the Bank to meet its commitment to excellence in each of its functions: monetary policy, financial system, currency, and funds management. We continue to push the boundaries by asking some fundamental questions and seeking answers to those questions,” it says.

One of the key areas of its research is aimed at identifying areas where the efficiency of Canadian capital markets can be improved. The will investigate:

• obstacles that hinder the efficient working of the financial system without significantly improving its safety
• informational asymmetries or regulatory initiatives in Canadian capital markets that inhibit market efficiency; and
• how credit risk and its management affect behaviour in Canadian capital markets.

The Bank of Canada also plans to look at whether asset prices are reliable indicators for monetary policy; the appropriate monetary policy response to an asset-price misalignment; and, whether easy credit is a necessary and/or sufficient condition for an asset-price misalignment (bubble) to develop or to be sustained.

Other areas of research include:

the determinants of productivity and potential output growth in Canada;