Posts

• November 21, 2002

  Bank of Canada Review - Autumn 2002

  

  Cover page

  Business College Currency

  The artifacts pictured on the cover form part of the National Currency Collection, Bank of Canada.

  Photographed by Gord Carter, Ottawa

  Content Type(s): Publications, Bank of Canada Review
• November 20, 2002

  CLS Bank: Managing Foreign Exchange Settlement Risk

  Bank of Canada Review - Autumn 2002 Paul Miller, Carol Ann Northcott

  In the foreign exchange market, where average daily turnover is in trillions of dollars and trades span time zones, legal systems, and domestic payments systems, participants take on various risks. The most serious risk is credit risk—the risk that one party will fail to pay. Central banks, private sector financial institutions, and domestic payments systems operators laboured for more than a decade to develop a multi-currency settlement system to deal with these risks. The result, the CLS Bank, began operations in September 2002. It virtually eliminates the credit risk inherent in foreign exchange transactions by providing a payment-versus-payment arrangement for settlement. The CLS Bank is regulated by the Federal Reserve Board in consultation with the central banks that have currencies settling through its system. At present there are seven currencies, including the Canadian dollar. The Bank of Canada acts as banker for the CLS Bank, providing it with a settlement account and making and receiving payments on its behalf through the Large Value Transfer System. With the participation and support of the world's largest foreign-exchange-dealing institutions, and growing membership, the CLS Bank has the potential to become the dominant global mechanism for settling foreign exchange transactions.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Payment clearing and settlement systems
• November 19, 2002

  Purchasing-Power Parity: Definition, Measurement, and Interpretation

  Bank of Canada Review - Autumn 2002 Robert Lafrance, Lawrence L. Schembri

  This article examines the concept of purchasing-power parity (PPP) and its implications for the equilibrium value of the Canadian exchange rate. PPP has two main applications, as a theory of exchange rate determination and as a means to compare living standards across countries. Concerning exchange rate determination, PPP is mainly useful as a reminder that monetary policy has no long-run impact on the real exchange rate, since the exchange rate can deviate persistently from its PPP value in response to real shocks. To compare living standards across countries, PPP exchange rates constructed by comparing the prices of national consumption baskets are used to translate per capita national incomes into a common currency. These rates are useful because they offset differences in national price levels to obtain comparable measures of purchasing power, but they are not an accurate measure of the equilibrium value of the exchange rate. The authors conclude that the current deviation of the Canadian exchange rate from the PPP rate does not imply that the exchange rate is undervalued, but that this deviation reflects the impact of persistent real factors, in particular, lower commodity prices.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Exchange rates
• November 18, 2002

  Governor Explains How the Bank of Canada Promotes Canada's Economic and Financial Welfare

  Media Relations Calgary, Alberta

  In a speech to the Calgary Chamber of Commerce, Bank of Canada Governor David Dodge today outlined some of the ways in which the central bank contributes to Canada's economic and financial welfare.

  Content Type(s): Press, Press releases
• November 18, 2002

  Promoting Canada's Economic and Financial Welfare

  Remarks David Dodge Calgary Chamber of Commerce Calgary, Alberta

  It's been a difficult year for many sectors of the Alberta economy. Certainly, the severe drought hurt many western farmers, and investment in the energy sector was held back by low oil and gas prices. In addition, the slump in the telecom sector has affected Calgary.

  Content Type(s): Press, Speeches and appearances, Remarks
• November 12, 2002

  Staying the Course

  Remarks David Dodge a panel discussion at the Banco de México Mexico City, Mexico

  The dramatic events of the last two years and growing concern about the near-term prospects for the global economy have created a climate in which policy-makers focus only on current economic developments and lose sight of longer-term goals.

  Content Type(s): Press, Speeches and appearances, Remarks

• Alternative Public Spending Rules and Output Volatility

  Staff Working Paper 2002-37 Jean-Paul Lam, William Scarth

  One of the central lessons learned from the Great Depression was that adjusting government spending each year to balance the budget increases the volatility of output.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Fiscal policy, Monetary policy transmission JEL Code(s): E, E5, E52, E58, E6, E62

• An Eclectic Approach to Estimating U.S. Potential GDP

  Staff Working Paper 2002-36 Marc-André Gosselin, René Lalonde

  The authors describe the principal results obtained from a new method applied to the estimation of potential U.S. GDP.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Potential output JEL Code(s): C, C3, C32, E, E2, E23, E3, E32

• The Impact of Common Currencies on Financial Markets: A Literature Review and Evidence from the Euro Area

  Staff Working Paper 2002-35 Liliane Karlinger

  This paper reviews both the theoretical and empirical literature on the impact of common currencies on financial markets and evaluates the first three years of experience with Economic and Monetary Union (EMU).

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rate regimes, Financial markets JEL Code(s): E, E4, E44, F, F2, F21, F3, F36, G, G1, G15

• How Do Canadian Banks That Deal in Foreign Exchange Hedge Their Exposure to Risk?

  Staff Working Paper 2002-34 Chris D'Souza

  This paper examines the daily hedging and risk-management practices of financial intermediaries in the Canadian foreign exchange (FX) market.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Market structure and pricing JEL Code(s): F, F3, F31, G, G1, G14, G2, G21