Posts
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September 3, 2003
Bank of Canada lowers target for the overnight rate by 1/4 percentage point to 2 3/4 per cent
The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 2 3/4 per cent. -
Monetary Policy in Estimated Models of Small Open and Closed Economies
The author develops and estimates a quantitative dynamic-optimizing model of a small open economy (SOE) with domestic and import price stickiness and capital-adjustment costs. A monetary policy rule allows the central bank to systematically manage the short-term nominal interest rate in response to deviations of inflation, output, and money growth from their steadystate levels. -
Measuring Interest Rate Expectations in Canada
Financial market expectations regarding future policy actions by the Bank of Canada are an important input into the Bank's decision-making process, and they can be measured using a variety of sources. The author develops a simple expectations-based model to focus on measuring interest rate expectations that are implied by the current level of money market yields. -
Income Trusts - Understanding the Issues
An income trust is an investment vehicle that distributes cash generated by a set of operating assets in a tax-efficient manner. The market capitalization of income trusts has grown rapidly over the past two years, reaching $45 billion at year-end 2002. -
Essays on Financial Stability
The four essays published here provide a useful overview for anyone interested in understanding the issues and policy environment surrounding financial system stability. -
August 23, 2003
Financial Developments in Canada: Past Trends and Future Challenges
Freedman and Engert focus on the changing pattern of lending and borrowing in Canada in the past thirty to forty years, including the types of financial instruments used and the relative roles of financial institutions and financial markets. They examine how borrowing mechanisms have changed over time and consider the challenges facing the Canadian financial sector, including whether our financial markets are in danger of disappearing because of the size and pre-eminence of U.S. financial markets. Some of the trends examined here include syndicated lending, securitization, and credit derivatives, a form of financial engineering that has become increasingly important in the last few years. They also study bond and equity markets to determine whether Canadian capital markets have been hollowed out or abandoned by Canadian firms and conclude that the data do not provide much support for that view. -
August 23, 2003
Bank of Canada Review - Summer 2003
Cover page
Canadian World War I War Bond
The $100 10-year bond of the FirstWar Loan is slightly larger than a sheet of legal-sized paper. It forms part of the National Currency Collection, Bank of Canada.
Photographed by Gord Carter, Ottawa.
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August 22, 2003
Measuring Interest Rate Expectations in Canada
Financial market expectations regarding future changes in the target for the overnight rate of interest are an important source of information for the Bank of Canada. Financial markets are the mechanism through which the policy rate affects other financial variables, such as longer-term interest rates, the exchange rate, and other asset prices. An accurate measure of their expectations can therefore help policy-makers assess the potential impact of contemplated changes. Johnson focuses on the expectations hypothesis, which measures expectations of future levels of the target overnight rate as implied by current money market yields. Although expectations can be derived from the current yield on any short-term fixed-income asset, some assets have proven to be more accurate predictors than others. The implementation of a policy of fixed-announcements dates has coincided with the increased predictive power of these short-term assets. As a result of this improvement, a relatively simple model of the yield curve can now provide an accurate measure of financial market expectations. -
August 22, 2003
Bank of Canada Operations during Current Power Difficulties
During the current power difficulties, the Bank of Canada in Ottawa has been operating from its back-up facility to provide essential services, such as monitoring financial markets and the critical clearing and settlement systems.