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International Monetary Fund. Western Hemisphere Dept.

This paper assesses the impact of high household debt on economic volatility in Canada. The debt per se may not necessarily be a risk for economic activity; it can amplify other shocks as well. A few studies have emphasized the link between the growth of household debt before 2007 and the severity of the Great Recession. Economies with debt tend to experience more severe housing busts and recessions. If household debt ratios are not stabilized, the vulnerability of the Canadian economy is likely to be high.

International Monetary Fund

The paper discusses the purpose, properties, and theoretical foundations of various indicators of inflation and also describes the forecasting methodology and performance of these indicators. It reviews the successful European labor market reform experiences and analyzes regulatory and supervisory frameworks in the European Union (EU), and assessments carried out under the IMF-World Bank Financial Sector Assessment Program (FSAP). It also investigates whether the cross-country correlation of bank business in Europe makes a good case for pan-European supervision.

International Monetary Fund. Monetary and Capital Markets Department
This Technical Note provides a summary of the review of systemic risk oversight arrangements and macroprudential policy issues in Canada. The paper discusses the existing systemic risk oversight arrangements and potential challenges, and then presents steps that can be taken to modernize the framework to ensure its effectiveness going forward. The paper focuses on systemic risk surveillance, including the current approaches and existing challenges such as data gaps and coordination. It also covers macroprudential policy issues, including the toolkit, the current policy stance and overall policy effectiveness. The review recommends that steps can be taken to improve the current system with a more formalized arrangement for systemic risk oversight. A single body in charge of systemic risk oversight would be the first-best option. Over time, the authorities should review whether systemic risk oversight under the Heads of Agencies Committee leadership with no statutory mandate is adequate. Macroprudential policy at the federal level has been effective; however, better coordination is essential given multiple provincial authorities’ ownership of prudential tools.
International Monetary Fund. Monetary and Capital Markets Department
This Detailed Assessment report, a part of the 2013 Financial Sector Assessment Program (FSAP) of Canada, assesses Canada’s regulatory regime and supervisory practices against the international standards. The IMF report suggests that the Office of the Superintendent of Financial Institutions (OSFI) should be empowered to take supervisory measures at the level of the holding company. It highlights that while OSFI requires Federally Regulated Insurers (FRI) FRIs to develop internal capital targets, requirements to develop an Own Risk and Solvency Assessment are scheduled to be implemented in 2014.
International Monetary Fund. Monetary and Capital Markets Department
This Financial System Stability Assessment paper discusses that Canada has enjoyed favorable macroeconomic outcomes over the past decades, and its vibrant financial system continues to grow robustly. However, macrofinancial vulnerabilities—notably, elevated household debt and housing market imbalances—remain substantial, posing financial stability concerns. Various parts of the financial system are directly exposed to the housing market and/or linked through housing finance. The financial system would be able to manage severe macrofinancial shocks. Major deposit-taking institutions would remain resilient, but mortgage insurers would need additional capital in a severe adverse scenario. Housing finance is broadly resilient, notwithstanding some weaknesses in the small non-prime mortgage lending segment. Although banks’ overall capital buffers are adequate, additional required capital for mortgage exposures, along with measures to increase risk-based differentiation in mortgage pricing, would be desirable. This would help ensure adequate through-the cycle buffers, improve mortgage risk-pricing, and limit procyclical effects induced by housing market corrections.
International Monetary Fund. Western Hemisphere Dept.
This Informational Annex highlights the Canadian authorities’ free-floating exchange rate regime. The exchange rate regime is free from exchange restrictions and multiple currency practices. The Canadian authorities do not maintain margins with respect to exchange transactions. However, the authorities may intervene to ensure orderly conditions in the exchange market. There are no taxes or subsidies on purchases or sales of foreign exchange. Canada’s exchange system is free of restrictions on the making of payments and transfers for current international transactions. Canada also maintains exchange restrictions for security reasons, based on UN Security Council resolutions reported to the IMF for approval.
International Monetary Fund. Western Hemisphere Dept.
After recovering rapidly from the Great Recession, the Canadian economy has slowed down in 2012. Growth weakened in the first three quarters of 2012, and recent indicators have suggested that the pace of economic expansion remained subpar in the fourth quarter. The fiscal policy has continued to be a drag on growth, as the stimulus is being withdrawn. These have been only partly offset by an improvement in financial conditions in 2012. Growth is expected to gain new momentum over 2013.