E3 - Prices, Business Fluctuations, and Cycles

• Forward Guidance and Expectation Formation: A Narrative Approach

  Staff Working Paper 2020-40 Christopher S. Sutherland

  How exactly does forward guidance influence interest rate expectations?

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Monetary policy, Monetary policy communications, Monetary policy transmission JEL Code(s): D, D8, D83, D84, E, E3, E37, E5, E52, E58

• Cyclicality of Schooling: New Evidence from Unobserved Components Models

  Staff Working Paper 2020-38 Barbara Sadaba, Sunčica Vujič, Sofia Maier

  What is the time-varying impact of economic cycles on decisions to invest in human capital?

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C3, C32, E, E3, I, I2, J, J2

• What do high-frequency expenditure network data reveal about spending and inflation during COVID‑19?

  Staff Analytical Note 2020-20 Kim Huynh, Helen Lao, Patrick Sabourin, Angelika Welte

  The official consumer price index (CPI) inflation measure, based on a fixed basket set before the COVID 19 pandemic, may not fully reflect what consumers are currently experiencing. We partnered with Statistics Canada to construct a more representative index for the pandemic with weights based on real-time transaction and survey data.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Inflation and prices, Payment clearing and settlement systems JEL Code(s): D, D1, D12, E, E3, E31, E4, E42, E5, E52

• Average is Good Enough: Average-inflation Targeting and the ELB

  Staff Working Paper 2020-31 Robert Amano, Stefano Gnocchi, Sylvain Leduc, Joel Wagner

  The Great Recession and current pandemic have focused attention on the constraint on nominal interest rates from the effective lower bound.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Economic models, Monetary policy framework JEL Code(s): E, E3, E31, E32, E5, E52

• Endogenous Time Variation in Vector Autoregressions

  Staff Working Paper 2020-16 Danilo Leiva-Leon, Luis Uzeda

  We introduce a new class of time-varying parameter vector autoregressions (TVP-VARs) where the identified structural innovations are allowed to influence — contemporaneously and with a lag — the dynamics of the intercept and autoregressive coefficients in these models.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Inflation and prices, Monetary policy transmission JEL Code(s): C, C1, C11, C3, C32, E, E3, E31, E5, E52

• Interest Rate Uncertainty as a Policy Tool

  Staff Working Paper 2020-13 Fabio Ghironi, Galip Kemal Ozhan

  We study a novel policy tool—interest rate uncertainty—that can be used to discourage inefficient capital inflows and to adjust the composition of external account between shortterm securities and foreign direct investment (FDI).

  Content Type(s): Staff research, Staff working papers Topic(s): International financial markets, Monetary policy and uncertainty, Monetary policy framework JEL Code(s): E, E3, E32, F, F2, F21, F3, F32, G, G1, G15

• Multi-Product Pricing: Theory and Evidence from Large Retailers in Israel

  Staff Working Paper 2020-12 Marco Bonomo, Carlos Carvalho, Oleksiy Kryvtsov, Sigal Ribon, Rodolfo Rigato

  Standard theories of price adjustment are based on the problem of a single-product firm, and therefore they may not be well suited to analyze price dynamics in the economy with multiproduct firms.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Market structure and pricing, Monetary policy JEL Code(s): D, D2, D21, D22, E, E3, E31, E5, E52, L, L1, L11

• IMPACT: The Bank of Canada’s International Model for Projecting Activity

  Technical Report No. 116 Patrick Blagrave, Claudia Godbout, Justin-Damien Guénette, René Lalonde, Nikita Perevalov

  We present the structure and features of the International Model for Projecting Activity (IMPACT), a global semi-structural model used to conduct projections and policy analysis at the Bank of Canada. Major blocks of the model are developed based on the rational error correction framework of Kozicki and Tinsley (1999), which allows the model to strike a balance between theoretical structure and empirical performance.

  Content Type(s): Staff research, Technical reports Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Economic models, International topics JEL Code(s): C, C6, C68, E, E2, E27, E3, E37, F, F0, F01, F3, F32, F4, F47

• Characterizing Breadth in Canadian Economic Activity

  Staff Analytical Note 2020-1 Taylor Webley, Carla Valerio, Maureen MacIsaac

  Real growth in gross domestic product tends to be meaningfully higher when a large share of industries and demand components are growing—that is, when growth is broad across many fronts.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles JEL Code(s): E, E3, E32

• Social Learning and Monetary Policy at the Effective Lower Bound

  Staff Working Paper 2020-2 Jasmina Arifovic, Alex Grimaud, Isabelle Salle, Gauthier Vermandel

  This research develops a model in which the economy is directly influenced by how pessimistic or optimistic economic agents are about the future. The agents may hold different views and update them as new economic data become available.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Central bank research, Credibility, Economic models, Monetary policy, Monetary policy communications JEL Code(s): C, C8, C82, E, E3, E32, E5, E52