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G-20 representatives, academics, market participants, and members of international financial institutions were brought together in Ottawa to explore the connection between robust financial markets and economic growth and development, share experiences, and to develop policy recommendations, where possible. Participants identified several areas they deemed critical for fostering strong domestic financial markets and reducing external vulnerability: sound macroeconomics policies, strengthened financial infrastructures and banking systems, and exchange rate flexibility for countries with widely open capital accounts. Papers presented in the six sessions and keynote address highlighted a number of issues, including currency mismatches, the sequence of financial liberalization and supervisory reforms, the development of local financial markets, infrastructure building and governance, and appropriate incentives.

Remarks by David Longworth, Deputy Governor of the Bank of Canada to the Canadian Association for Business Economics

The first step in designing effective policies to stabilize an economy is to understand business cycles. No country is isolated from the world economy and external shocks are becoming increasingly important.

According to the Fisher hypothesis, the gap between Canadian nominal and Real Return Bond yields (or break-even inflation rate) should be a good measure of inflation expectations.

The authors model trading by foreign and domestic investors in developed-country equity markets.

The author studies the macroeconomic consequences of discretionary changes in the fiscal policy instruments for Canada.

In this paper, the author describes reduced-form linear and non-linear econometric models developed to forecast and analyze quarterly data on output growth in the Canadian manufacturing sector from 1981 to 2003.

The authors present an empirical model to forecast short-run inventory investment behaviour for Canada.

The author empirically tests two aspects of the interaction between financial variables and inventory investment: negative cash flow and finance constraints due to asymmetric information.

In two recent papers, Jensen (2002) and Walsh (2003), using a hybrid New Keynesian model, demonstrate that a regime that targets either nominal income growth or the change in the output gap can effectively replicate the outcome under commitment and hence reduce the size of the stabilization bias.