Posts
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June 21, 2006
The Bank of Canada’s Role in the Oversight of Clearing and Settlement Systems
This article sets out the Bank’s mandate for regulatory oversight of clearing and settlement systems, the strategy that is followed, and the key activities relevant to the conduct of oversight. -
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June 16, 2006
Global Imbalances—Just How Dangerous?
The combination of rising current account surpluses in Asia and a growing current account deficit in the United States has raised concerns that the resulting imbalances pose a threat to the world economy, especially if they are reversed in a disorderly manner. Some experts believe that normal market forces will resolve these imbalances over time; others argue that policy-makers should facilitate the adjustment with policies that curb domestic demand in deficit countries and stimulate it in surplus countries. Little and Lafrance provide a guide to the major issues and controversies involved in the debate. -
June 11, 2006
Evaluating Measures of Core Inflation
Since the Bank of Canada adopted inflation targeting in 1991, it has focused on a measure of core inflation as a shorter-term guide for monetary policy. When the targets were renewed in 2001, the Bank adopted CPIX as its measure of core inflation because of the advantages it offered. Leflèche and Armour review the experience with CPIX and whether the criteria used to select it in 2001 still favour the measure today. They describe the various measures of core inflation monitored by the Bank and evaluate them on the basis of the volatility of the components, the volatility of the core measures themselves, absence of bias relative to total CPI, predictive power, and certain practical criteria, including timeliness and credibility. They conclude that CPIX still satisfies all the empirical and practical criteria. -
June 8, 2006
Floating Dollar, Anchored Inflation: The Role of the Exchange Rate in Canada's Monetary Policy Framework
The two key components of the Bank's monetary policy framework are an "anchor," the inflation target, and a "float," the flexible exchange rate. Living by the ocean, you know better than I that a good mooring is one that keeps a boat in place, yet allows some give and take for the wind and the tide. -
Launching the NEUQ: The New European Union Quarterly Model, A Small Model of the Euro Area and U.K. Economies
The authors develop a projection model of the euro area and the United Kingdom. The model consists of two country blocks, endogenous to each other via the foreign demand channel. -
June 2, 2006
Another Look at the Inflation-Target Horizon
The conduct of monetary policy within an inflation-targeting framework requires the establishment of an inflation-target horizon, which is the average time it takes inflation to return to the target. Policy-makers have an interest in communicating this horizon, since it is likely to help anchor inflation expectations. This article focuses on the determination of the appropriate policy horizon by reporting on two recent Bank of Canada studies. The evidence suggests that the current target horizon of six to eight quarters remains appropriate. It is important to note that the duration of the optimal inflation-target horizon varies widely, depending on the combination of shocks to the economy. In rare cases when the financial accelerator is triggered by a persistent shock, such as an asset-price bubble, it may be appropriate to take a longer view of the inflation-target horizon.
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