For example, time-varying term, liquidity, and risk spreads have been shown to be empirically relevant for explaining real activity, as have non-price terms for credit. Another important insight from the financial crisis is that broader procyclical dynamics – that is, forces that amplify cyclical fluctuations – in money, asset, and credit markets also have implications for the real economy and hence, monetary policy.
A critical part of the Bank's research agenda is on these real-financial linkages, to better understand them and incorporate them into our models and policy analysis. 1  One exception was in a very specific segment of the Canadian market for non-bank-sponsored, asset-backed commercial paper (ABCP), which had transparency problems and which led to the standstill under the Montreal Accord.