E3 - Prices, Business Fluctuations, and Cycles
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Le pouvoir de prévision des indices PMI
The forecast of world economic growth plays a key role in the conduct of Canadian monetary policy. In this context, the authors study the usefulness of the monthly Purchasing Managers’ Indexes (PMIs) in predicting short-term real GDP growth in the euro area, Japan, the United Kingdom, and China, as well as in the world economy. -
On the Advantages of Disaggregated Data: Insights from Forecasting the U.S. Economy in a Data-Rich Environment
The good forecasting performance of factor models has been well documented in the literature. While many studies focus on a very limited set of variables (typically GDP and inflation), this study evaluates forecasting performance at disaggregated levels to examine the source of the improved forecasting accuracy, relative to a simple autoregressive model. We use the latest revision of over 100 U.S. time series over the period 1974-2009 (monthly and quarterly data). -
Introducing the Bank of Canada's Projection Model for the Global Economy
To complement its existing set of tools to analyze and forecast developments in the global economy, the Bank of Canada recently developed a version of the Global Projection Model (GPM) jointly with staff at the International Monetary Fund. -
Price Level Targeting: What Is the Right Price?
Various papers have suggested that Price-Level targeting is a welfare improving policy relative to Inflation targeting. From a practical standpoint, this raises an important yet unanswered question: What is the optimal price index to target? -
Labour Reallocation, Relative Prices and Productivity
This paper documents the rate at which labour flows between industries and between firms within industries using the most recent data available. It examines the determinants of these flows and their relationship with the productivity growth. -
Real and Nominal Frictions within the Firm: How Lumpy Investment Matters for Price Adjustment
Real rigidities are an important feature of modern sticky price models and are policy-relevant because of their welfare consequences, but cannot be structurally identified from time series. I evaluate the plausibility of capital specificity as a source of real rigidities using a two-dimensional generalized (s,S) model calibrated to micro evidence. -
Estimating DSGE-Model-Consistent Trends for Use in Forecasting
The workhorse DSGE model used for monetary policy evaluation is designed to capture business cycle fluctuations in an optimization-based format. It is commonplace to log-linearize models and express them with variables in deviation-from-steady-state format. -
Risk Premium Shocks and the Zero Bound on Nominal Interest Rates
There appears to be a disconnect between the importance of the zero bound on nominal interest rates in the real-world and predictions from quantitative DSGE models. Recent economic events have reinforced the relevance of the zero bound for monetary policy whereas quantitative models suggest that the zero bound does not constrain (optimal) monetary policy. -
Consumption, Housing Collateral, and the Canadian Business Cycle
Using Bayesian methods, we estimate a small open economy model in which consumers face limits to credit determined by the value of their housing stock. The purpose of this paper is to quantify the role of collateralized household debt in the Canadian business cycle.