E3 - Prices, Business Fluctuations, and Cycles
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Micro Foundations of Price-Setting Behaviour: Evidence from Canadian Firms
How do firms adjust prices in the marketplace? Do they tend to adjust prices infrequently in response to changes in market conditions? If so, why? These remain key questions in macroeconomics, particularly for central banks that work to keep inflation low and stable. -
Term Structure Transmission of Monetary Policy
Under bond-rate transmission of monetary policy, the authors show that a generalized Taylor Principle applies, in which the average anticipated path of policy responses to inflation is subject to a lower bound of unity. This result helps explain how bond rates may exhibit stable responses to inflation, even in periods of passive policy. -
Corporate Balance Sheets in Developed Economies: Implications for Investment
In this paper, the authors examine the aggregate national balance-sheets of non-financial corporations in Australia and the G7 countries with a view to assessing both their financial structure and their financial position. More importantly, the authors investigate whether the financial position of non-financial corporations (i.e., debt-to-equity ratio) is material to the economy's investment prospects and whether the importance of this channel differs depending on the structure of corporate financing i.e., bank-based or market-oriented financing structures. -
Perhaps the FOMC Did What It Said It Did: An Alternative Interpretation of the Great Inflation
This paper uses real-time briefing forecasts prepared for the Federal Open Market Committee (FOMC) to provide estimates of historical changes in the design of U.S. monetary policy and in the implied central-bank target for inflation. Empirical results support a description of policy with an effective inflation target of roughly 7 percent in the 1970s. -
Central Bank Performance under Inflation Targeting
The inflation targeting (IT) regime is 17 years old. With practice of IT now in more than 21 countries, there is enough evidence gathered to take stock of the IT experience. In this paper, we analyze the inflation record of IT central banks. -
Does Indexation Bias the Estimated Frequency of Price Adjustment?
We assess the implications of price indexation for estimated frequency of price adjustment in sticky price models of business cycles. These models predominantly assume that non-reoptimized prices are indexed to lagged or average inflation. -
Evaluating Forecasts from Factor Models for Canadian GDP Growth and Core Inflation
This paper evaluates the performance of static and dynamic factor models for forecasting Canadian real output growth and core inflation on a quarterly basis. We extract the common component from a large number of macroeconomic indicators, and use the estimates to compute out-of-sample forecasts under a recursive and a rolling scheme with different window sizes. -
Technology Shocks and Business Cycles: The Role of Processing Stages and Nominal Rigidities
This paper develops and estimates a dynamic general equilibrium model that realistically accounts for an input-output linkage between firms operating at different stages of processing. Firms face technological change which is specific to their processing stage and charge new prices according to stage-specific Calvo-probabilities. -
Housing Market Cycles and Duration Dependence in the United States and Canada
Housing wealth is a large component of total wealth and plays an important role in aggregate business cycles. In this paper, we explore data on real house price cycles at the aggregate level and city level for the United States and Canada.