Staff working papers
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Analytical Derivatives for Markov Switching Models
This paper derives analytical gradients for a broad class of regime-switching models with Markovian state-transition probabilities. Such models are usually estimated by maximum likelihood methods, which require the derivatives of the likelihood function with respect to the parameter vector. These gradients are usually calculated by means of numerical techniques. The paper shows that analytical gradients […] -
Inflation, Learning and Monetary Policy Regimes in The G-7 Economies
In this paper, the authors report estimates of two- and three-state Markov switching models applied to inflation, measured using consumer price indexes, in the G-7 countries. They report tests that show that two-state models are preferred to simple one-state representations of the data, and argue that three-state representations are more satisfactory than two-state representations for […] -
Changes in the Inflation Process in Canada: Evidence and Implications
The Canadian economy is currently in transition from a period of disinflation to one with a very low and relatively stable inflation rate. Against this background, the author asks whether reduced-form parameters should be expected to be invariant to changes in the inflation process. This raises two empirical issues. The first relates to whether shifts […] -
Government Debt and Deficits In Canada: A Macro Simulation Analysis
This paper examines the macroeconomic implications of rising government debt in Canada and the short-run costs and long-run benefits of stemming the rise. The discussion begins with an evaluation of the long-run consequences of increasing government indebtedness, first based on the simple arithmetic of the government's long-run budget constraint, and then based on simulations of […] -
Empirical Evidence on the Cost of Adjustment and Dynamic Labour Demand
In this paper the author examines whether there is significant evidence of the effect of adjustment costs on Canadian labour demand. This is an important question, as sluggish adjustment of labour demand resulting from significant adjustment costs may be one factor that could help explain some of the unemployment persistence found in Canadian data. The […] -
Estimating and Projecting Potential Output Using Structural VAR Methodology: The Case of the Mexican Economy
In this paper the authors show how potential output can be estimated and projected through an approach derived from the structural vector autoregression methodology. This approach is applied to the Mexican economy. To identify demand, supply and world oil shocks, the authors assume that demand shocks do not have a permanent effect on output and […] -
Deriving Agents' Inflation Forecasts from the Term Structure of Interest Rates
In this paper, the author uses the term structure of nominal interest rates to construct estimates of agents' expectations of inflation over several medium-term forecast horizons. The Expectations Hypothesis is imposed together with the assumption that expected future real interest rates are given by current real rates. Under these maintained assumptions, it is possible to […] -
Searching for the Liquidity Effect in Canada
This paper examines the empirical evidence of the liquidity effect in Canada. In the presence of the liquidity effect, the initial impact of an unanticipated expansionary monetary policy is to lower nominal and real interest rates for a short period of time. -
The Causes of Unemployment in Canada: A Review of the Evidence
This paper reviews various competing theories of structural unemployment and considers whether they may be used to explain any of the rise in unemployment experienced by Canada during the most recent economic cycle.