Posts
-
-
January 20, 1999
The euro: Its economic implications and its lessons for Canada
We have just witnessed the dawn of a new era in Europe. Beginning this month, 11 of the 15 member countries of the European Union have joined in a currency union. And they are using the euro as their common currency. The currency union is yet another step on the road to greater economic, social, and political integration in Europe - a vision some 50 years in the making. -
January 20, 1999
Bank of Canada Governor Addresses Canadian Club of Ottawa
Bank of Canada Governor Gordon Thiessen today reviewed the economic implications of the European currency union and its lessons for Canada. -
January 15, 1999
Bank of Canada Review - Winter 1998-1999
Cover page
1858 Canadian pattern cent
The 1858 pattern cent is approximately the size of a twenty-five cent piece.
Photography by James Zagon.
-
Capital Gains and Inflation Taxes in a Life-cycle Model
Inflation distorts an economy through many channels. This paper highlights the interaction between inflation and capital gains tax and how they distort an economy through the financial market. Several observations motivate this research. First, capital formation or investment is an important channel for economic agents to smooth their consumption over their life cycles. Second, capital […] -
Dynamic Employment and Hours Effects of Government Spending Shocks
In this paper, we analyze the dynamic behaviour of employment and hours worked per worker in a stochastic general equilibrium model with a matching mechanism between vacancies and unemployed workers. The model is estimated for the United States using the Generalized Methods of Moments (GMM) estimation technique. An increase in government spending raises hours worked […] -
Résultats empiriques multi-pays relatifs à l'impact des cibles d'inflation sur la crédibilité de la politique monétaire
Over the last few years, many countries have adopted inflation targets. The objective of this paper is to report some empirical results that bear on the link between the adoption of inflation targets and the behaviour of the main macroeconomic variables. After a discussion of some recent articles analyzing international experience, some simple statistical tests […] -
A Non-Paradoxical Interpretation of the Gibson Paradox
In this study, we show how, to yield the real cost of borrowing, the price level can be combined with the nominal interest rate in a monetary regime where the level of prices is trend stationary. We show that the price level then conveys intertemporal information in a way similar to nominal interest rates. We […] -
December 15, 1998
Recent economic and financial developments
This commentary, completed in mid-January, discusses economic and financial developments in Canada since the publication of the November Monetary Policy Report. Conditions in world financial markets have improved since November, but the global economic environment is still uncertain. The main uncertainty centres on Japan, which remains in recession. If bank reforms and stimulative fiscal measures are effectively implemented in that country, a gradual recovery should begin there during 1999. The economic expansion in other major industrialized countries, which together account for over half of world output, is expected to remain well sustained. The U.S. economy, in particular, continues to outstrip expectations and even if it slows, as expected, will likely still operate at high levels. In Canada, indicators of domestic demand remain relatively firm, although the growth of monetary and credit aggregates has moderated. The Bank's outlook for 1999 continues to be one of ongoing economic expansion. Inflation is expected to stay in the lower half of the target range of 1 to 3 per cent. Update on 23 February 1999: The global economic environment in which Canada operates is still uncertain. In Japan, there is little sign yet that the economy is about to move out of its slump, while in Europe, the latest data point to a softening in economic activity. In sharp contrast, the U.S. economy continues to outstrip expectations, ending 1998 with growth of 5.6 per cent (annual rate) in the fourth quarter—much stronger growth than had been anticipated earlier. Despite lingering economic uncertainty, global financial markets have been much more stable compared with last autumn and do not seem to have been substantially affected by the events in Brazil. This would appear to reflect the effects of reductions in official interest rates around the world since the autumn as well as the success some emerging-market economies have had in dealing with their problems. As a result, international investors and markets seem to have a renewed sense of their ability to assess and differentiate among debtor countries as well as other borrowers. Here in Canada, even if we allow for the effects of temporary factors (such as the return to normal operations following the end of major labour disruptions), the underlying momentum of the economy is healthy. While resource-based export revenues remain weak, exports of other goods, particularly automotive products, surged in the closing months of 1998, bolstered by continued strong U.S. demand and Canada's improved competitive position. Growth in consumer spending eased through the latter part of 1998, mainly because of the effects on confidence of last autumn's financial turbulence and the end of financing incentives on automobile purchases. The reversal of these factors should have a beneficial effect on consumer demand early in 1999. Housing starts recovered in the fourth quarter, following the resolution of labour disputes, while business investment continued to expand modestly. The robust, broad-based employment gains recorded through the fourth quarter carried into January 1999. On balance, recent data suggest that real GDP increased by about 4 per cent (annual rate) in the fourth quarter—at the upper end of the range expected at the time the commentary was completed. The latest data point to core inflation fluctuating around the lower end of the inflation-control target range of 1 to 3 per cent. While upward pressure on the price level from the past exchange rate depreciation continues, the dampening effects of ongoing intense retail competition, excess supply in product markets, and restrained unit labour costs have kept overall inflation somewhat below expectations. Improved financial market conditions, coupled with the general firmness of recent domestic economic data and a slightly more favourable outlook for commodity prices, have supported a stronger Canadian dollar since completion of the commentary. Because of this, monetary conditions have tightened somewhat further since mid-January. With a measure of stability returning to global financial markets, concerns about the effects of financial volatility on consumer and business confidence in Canada have diminished. As noted in the commentary, such concerns were an important consideration for the Bank in the period following the Russian crisis, when particular emphasis had to be placed on calming financial markets. The easing of these pressures has made it possible to refocus attention on the medium-term policy objective of keeping the trend of inflation inside the target range. -
December 14, 1998
Downward wage rigidity
There has recently been considerable discussion about the ability of inflation to facilitate the adjustment of prices and wages and thus enhance economic performance. The discussion centres on whether wages are downwardly rigid. Wages are said to be downwardly rigid if it is difficult for the wages of some workers to fall despite underlying supply and demand pressures for decreases. Some authors have suggested that if downward nominal wage rigidity is prevalent it would be desirable to select a positive rate of inflation as the target for monetary policy. In this article, the authors evaluate the wage-rigidity hypothesis. They first examine the empirical evidence to assess whether the degree of downward rigidity is significant in Canada. They then analyze some key assumptions of the wage-rigidity hypothesis and its implications for employment. They also look at the empirical evidence on whether the combination of downward wage rigidity and low inflation has reduced employment.