Staff working papers

• A Distant-Early-Warning Model of Inflation Based on M1 Disequilibria

  Staff Working Paper 1996-5 Joseph Atta-Mensah, Walter Engert, Scott Hendry, Jamie Armour

  A vector error-correction model (VECM) that forecasts inflation between the current quarter and eight quarters ahead is found to provide significant leading information about inflation. The model focusses on the effects of deviations of M1 from its long-run demand but also includes, among other things, the influence of the exchange rate, a simple measure of the output gap and past prices.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Monetary aggregates, Monetary policy transmission JEL Code(s): E, E3, E37, E5, E52

• Overnight Rate Innovations as a Measure of Monetary Policy Shocks in Vector Autoregressions

  Staff Working Paper 1996-4 Walter Engert, Ben Fung, Jamie Armour

  The authors examine the Bank of Canada's overnight rate as a measure of monetary policy in vector autoregression (VAR) models. Since the time series of the Bank's current measure of the overnight rate begins only in 1971, the authors splice it to day loan rate observations to obtain a sufficiently long period of data.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Monetary and financial indicators JEL Code(s): E, E5, E52

• Regime-Switching Models: A Guide to the Bank of Canada Gauss Procedures

  Staff Working Paper 1996-3 Simon van Norden, Robert Vigfusson

  This paper is a user's guide to a set of Gauss procedures developed at the Bank of Canada for estimating regime-switching models.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods JEL Code(s): C, C6, C63

• Decomposing U.S. Nominal Interest Rates into Expected Inflation and Ex Ante Real Interest Rates Using Structural VAR Methodology

  Staff Working Paper 1996-2 Pierre St-Amant

  In this paper, the author uses structural vector autoregression methodology to decompose U.S. nominal interest rates into an expected inflation component and an ex ante real interest rate component. He identifies inflation expectations and ex ante real interest rate shocks by assuming that nominal interest rates and inflation expectations move one-for-one in the long-run—they are cointegrated (1,1)—and that the real interest rate is stationary.

  Content Type(s): Staff research, Staff working papers Topic(s): Interest rates, International topics JEL Code(s): E, E3, E31, E4, E43

• Switching Between Chartists and Fundamentalists: A Markov Regime-Switching Approach

  Staff Working Paper 1996-1 Robert Vigfusson

  Since the early 1980s, models based on economic fundamentals have been poor at explaining the movements in the exchange rate (Messe 1990). In response to this problem, Frankel and Froot (1988) developed a model that uses two approaches to forecast the exchange rate: the fundamentalist approach, which bases the forecast on economic fundamentals, and the chartist approach, which bases the forecast on the past behaviour of the exchange rate.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets JEL Code(s): C, C4, C40, G, G1, G12