Posts
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The Optimal Level of the Inflation Target: A Selective Review of the Literature and Outstanding Issues
Bank of Canada research done prior to the most recent renewal of the inflation-control agreement in 2011 concluded that the benefits associated with a target below 2 per cent were insufficient to justify the increased risk of being constrained by the zero lower bound (ZLB) on nominal interest rates. -
Exchange Rates and Oil Prices
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 Changes, Yield Spreads, and Threshold Effects
Using interest rate yield spreads to explain changes in inflation, we investigate whether such relationships can be modelled using two-regime threshold models. -
The Dynamic Behaviour of Canadian Imports and the Linear-Quadratic Model: Evidence Based on the Euler Equation
We examine the ability of the simple linear-quadratic model under rational expectations to explain dynamic behaviour of aggregate Canadian imports. In contrast to authors of previous studies who examine dynamic behaviour using the LQ model, we estimate the structural parameters using the Euler equation in a limited information framework that does not require an explicit solution for the model's control variables in terms of the exogenous forcing variables. -
December 31, 2019
Research Update - December 2019
This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website. -
The Economic Value of Realized Volatility: Using High-Frequency Returns for Option Valuation
Many studies have documented that daily realized volatility estimates based on intraday returns provide volatility forecasts that are superior to forecasts constructed from daily returns only. We investigate whether these forecasting improvements translate into economic value added. -
Predicting Financial Stress Events: A Signal Extraction Approach
The objective of this paper is to propose an early warning system that can predict the likelihood of the occurrence of financial stress events within a given period of time. To achieve this goal, the signal extraction approach proposed by Kaminsky, Lizondo and Reinhart (1998) is used to monitor the evolution of a number of economic indicators that tend to exhibit an unusual behaviour in the periods preceding a financial stress event. -
Deriving Longer-Term Inflation Expectations and Inflation Risk Premium Measures for Canada
We present two models for long-term inflation expectations and inflation risk premiums for Canada. -
Uncertainty and Monetary Policy Experimentation: Empirical Challenges and Insights from Academic Literature
Central banks face considerable uncertainty when conducting monetary policy. The COVID-19 pandemic brought this issue back to the forefront of policy discussions. We draw from academic literature to review key sources of uncertainty and how they affect the conduct of monetary policy.