Staff research
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Fads or Bubbles?
This paper tests between fads and bubbles using a new empirical strategy (based on switching-regression econometrics) for distinguishing between competing asset-pricing models. By extending the Blanchard and Watson (1982) model, we show how stochastic bubbles can lead to regime-switching in stock market returns. -
Reconsidering Cointegration in International Finance: Three Case Studies of Size Distortion in Finite Samples
This paper reconsiders several recently published but controversial results about the behaviour of exchange rates. In particular, it explores finite-sample problems in the application of cointegration tests and shows how these may have affected the conclusions of recent research. -
Do Mechanical Filters Provide a Good Approximation of Business Cycles?
In this paper, the authors examine how well the Hodrick-Prescott filter (HP) and the band-pass filter recently proposed by Baxter and King (BK) extract the business-cycle component of macroeconomic time series. -
A Modified P*-Model of Inflation Based on M1
This paper examines the performance of M1 in an indicator-model of inflation over time horizons as long as 16 quarters into the future. -
L'endettement du Canada et ses effets sur les taux d'intérêt réels de long terme
This paper examines the effects that Canada's indebtedness has on Canadian real long-term interest rates, using the vector error-correction model (VECM). Our results show that there is a strongly cointegrated relationship between real interest rates in Canada, U.S. real interest rates, and Canadian public and external debt ratios. -
The Bank of Canada's New Quarterly Projection Model, Part 4. A Semi-Structural Method to Estimate Potential Output: Combining Economic Theory with a Time-Series Filter
The level of potential output plays a central role in the Bank of Canada's new Quarterly Projection Model (QPM). This report, the fourth in a series documenting QPM, describes a general method to measure potential output, as well as its implementation in the QPM system. -
Speculative Behaviour, Regime-Switching and Stock Market Crashes
This paper uses regime-switching econometrics to study stock market crashes and to explore the ability of two very different economic explanations to account for historical crashes. The first explanation is based on historical accounts of "manias and panics." -
The Commodity-Price Cycle and Regional Economic Performance in Canada
This paper attempts to provide one interpretation of the broad regional economic history of Canada since the early 1970s. As the title of the paper suggests, we believe that, to a significant degree, regional diversity in economic performance reflects movements in Canada's terms of trade, which very frequently are tied to developments in world commodity markets. -
Avoiding the Pitfalls: Can Regime-Switching Tests Detect Bubbles?
Work on testing for bubbles has caused much debate, much of which has focussed on methodology. Monte Carlo simulations reported in Evans (1991) showed that standard tests for unit roots and cointegration frequently reject the presence of bubbles even when such bubbles are present by construction. Evans referred to this problem as the pitfall of testing for bubbles.