Staff research

• Why Canada Needs a Flexible Exchange Rate

  Staff Working Paper 1999-12 John Murray

  This paper explores the arguments for and against a common currency for Canada and the United States and attempts to determine whether such an arrangement would offer any significant advantages for Canada compared with the present flexible exchange rate system. The paper first reviews the theoretical arguments advanced in the economics literature in support of fixed and flexible currency arrangements. A discussion of Canada's past experience with the two exchange rate systems follows, after which there is a survey of the empirical evidence published on Canada's current and prospective suitability for some form of fixed currency arrangement with the United States. The final section of the paper examines critically a number of concerns raised about the behaviour of the current flexible exchange rate system.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates JEL Code(s): F, F3, F31

• Liquidity of the Government of Canada Securities Market: Stylized Facts and Some Market Microstructure Comparisons to the United States Treasury Market

  Staff Working Paper 1999-11 Toni Gravelle

  The aims of this study are to examine how liquidity in the Government of Canada securities market has evolved over the 1990s and to determine what factors influence the level of liquidity in this market, with some comparisons to the U.S. Treasury securities market. We find empirical support for the hypothesis that an increase in […]

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets JEL Code(s): D, D4, G, G1, G2

• Uncovering Inflation Expectations and Risk Premiums From Internationally Integrated Financial Markets

  Staff Working Paper 1999-6 Ben Fung, Scott Mitnick, Eli Remolona

  Theory and empirical evidence suggest that the term structure of interest rates reflects risk premiums as well as market expectations about future inflation and real interest rates. We propose an approach to extracting such premiums and expectations by exploiting both the comovements among interest rates across the yield curve and between two countries, Canada and […]

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Inflation and prices, Interest rates, International topics JEL Code(s): E, E4, E43, G, G1, G12, G15

• Real Effects of Collapsing Exchange Rate Regimes: An Application to Mexico

  Staff Working Paper 1999-10 Patrick Osakwe, Lawrence L. Schembri

  This paper examines the impact of a collapsing exchange rate regime on output in an open economy in which shocks to capital flows and exports predominate. A sticky-price rational expectations model is used to compare the variability of output under the collapsing regime to that under alternative fixed and flexible regimes. Output is found to […]

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates JEL Code(s): F, F3, F31, F4, F41

• Measuring Potential Output within a State-Space Framework

  Staff Working Paper 1999-9 Maral Kichian

  In this paper we measure potential output (and consequently the output gap) using state-space models. Given that the estimated output gap is used as an indicator to measure the extent of inflationary pressures in the economy, we evaluate the use of such models for the implementation of monetary policy. Our starting point is the Gerlach […]

  Content Type(s): Staff research, Staff working papers Topic(s): Potential output JEL Code(s): D, D2, D24

• Monetary Rules When Economic Behaviour Changes

  Staff Working Paper 1999-8 Robert Amano, Donald Coletti, Tiff Macklem

  This paper examines the implications of changes in economic behaviour for simple inflation-forecast–based monetary rules of the type currently used at two inflation-targeting central banks. Three types of changes in economic behaviour are considered, changes that are motivated by developments in monetary and fiscal policy in the 1990s: changes in monetary policy credibility, changes in […]

  Content Type(s): Staff research, Staff working papers Topic(s): Credibility, Monetary policy and uncertainty, Monetary policy framework JEL Code(s): E, E5, E52

• The Quantity of Money and Monetary Policy

  Staff Working Paper 1999-5 David Laidler

  The relationships among the quantity theory of money, monetarism and policy regimes based on money-growth and inflation targeting are briefly discussed as a prelude to an exposition of alternative views of money's role in the transmission mechanism of monetary policy. The passive-money view treats the money supply as an endogenous variable that plays no role […]

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary aggregates, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E5, E51, E52

• Inflation Targeting under Uncertainty

  Technical Report No. 85 Gabriel Srour

  This paper studies the implications of certain kinds of uncertainty for monetary policy. It first describes the optimum policy rule in a simple model of the transmission mechanism as in Ball and Svensson.

  Content Type(s): Staff research, Technical reports Topic(s): Monetary policy and uncertainty, Monetary policy framework JEL Code(s): E, E5, E52

• The Exchange Rate Regime and Canada's Monetary Order

  Staff Working Paper 1999-7 David Laidler

  It is a mistake to debate the merits of alternative exchange rate regimes for Canada independently of other features of the monetary order. A coherent order requires a well-defined goal for monetary policy, one that the authorities are capable of achieving, and that anchors private sector expectations. For it to be liberal, the relevant authorities […]

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Monetary policy framework JEL Code(s): E, E5, E52, F, F3, F31

• An Intraday Analysis of the Effectiveness of Foreign Exchange Intervention

  Staff Working Paper 1999-4 Neil Beattie, Jean-François Fillion

  This paper assesses the effectiveness of Canada's official foreign exchange intervention in moderating intraday volatility of the Can$/US$ exchange rate, using a 2-1/2-year sample of 10-minute exchange rate data. The use of high frequency data (higher than daily frequency) should help in assessing the impact of intervention since the foreign exchange market is efficient and […]

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Financial markets JEL Code(s): F, F3, F31, G, G1, G15