May 7, 1995
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2380
result(s)
May 6, 1995
Managing the federal government's cash balances: A technical note
In addition to its primary role as the country's central bank, the Bank of Canada also acts as the federal government's banker and financial adviser. One of the activities associated with this role as fiscal agent is managing the government's Canadian dollar balances. This function is examined in this article. The main priority is to ensure that the government has sufficient cash to meet its daily needs. This requires careful forecasting and monitoring of the government's daily receipt and expenditure flows, as well as an ongoing borrowing program to refinance maturing debt and to replenish the balances during periods when outflows, on average, exceed inflows. The cost of borrowing to raise cash balances for the government is considerably higher than the interest earned on any balances that are available "on demand." To reduce this net cost, balances in excess of those required for daily needs are invested in "term" deposits that earn a higher rate of interest than that earned on the demand balances. The net cost of holding government balances has also been reduced through the use of cash management bills, which are flexible, short-term borrowing instruments that complement the government's regular weekly issues of 3-, 6- and 12-month treasury bills.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Debt management
Changes in the Inflation Process in Canada: Evidence and Implications
Staff Working Paper 1995-5
Doug Hostland
The Canadian economy is currently in transition from a period of disinflation to one with a very low and relatively stable inflation rate. Against this background, the author asks whether reduced-form parameters should be expected to be invariant to changes in the inflation process. This raises two empirical issues. The first relates to whether shifts […]
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Inflation and prices
Government Debt and Deficits In Canada: A Macro Simulation Analysis
Staff Working Paper 1995-4
Tiff Macklem,
David Rose,
Robert Tetlow
This paper examines the macroeconomic implications of rising government debt in Canada and the short-run costs and long-run benefits of stemming the rise. The discussion begins with an evaluation of the long-run consequences of increasing government indebtedness, first based on the simple arithmetic of the government's long-run budget constraint, and then based on simulations of […]
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Fiscal policy
Empirical Evidence on the Cost of Adjustment and Dynamic Labour Demand
Staff Working Paper 1995-3
Robert Amano
In this paper the author examines whether there is significant evidence of the effect of adjustment costs on Canadian labour demand. This is an important question, as sluggish adjustment of labour demand resulting from significant adjustment costs may be one factor that could help explain some of the unemployment persistence found in Canadian data. The […]
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Labour markets
Estimating and Projecting Potential Output Using Structural VAR Methodology: The Case of the Mexican Economy
Staff Working Paper 1995-2
Alain DeSerres,
Alain Guay,
Pierre St-Amant
In this paper the authors show how potential output can be estimated and projected through an approach derived from the structural vector autoregression methodology. This approach is applied to the Mexican economy. To identify demand, supply and world oil shocks, the authors assume that demand shocks do not have a permanent effect on output and […]
Content Type(s):
Staff research,
Staff working papers
Topic(s):
International topics,
Potential output
The Bank of Canada's New Quarterly Projection Model, Part 2. A Robust Method for Simulating Forward-Looking Models
Technical Report No. 73
John Armstrong,
Richard Black,
Douglas Laxton,
David Rose
In this report, we describe methods for solving economic models when expectations are presumed to have at least some element of consistency with the predictions of the model itself. We present analytical results that establish the convergence properties of alternative solution procedures for linear models with unique solutions. Only one method is guaranteed to converge, […]
Content Type(s):
Staff research,
Technical reports
Topic(s):
Economic models
JEL Code(s):
C,
C3,
C32,
C5,
C53
Deriving Agents' Inflation Forecasts from the Term Structure of Interest Rates
Staff Working Paper 1995-1
Christopher Ragan
In this paper, the author uses the term structure of nominal interest rates to construct estimates of agents' expectations of inflation over several medium-term forecast horizons. The Expectations Hypothesis is imposed together with the assumption that expected future real interest rates are given by current real rates. Under these maintained assumptions, it is possible to […]
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Inflation and prices,
Interest rates
December 9, 1994
The term structure of interest rates as a leading indicator of economic activity: A technical note
The spread between long-term and short-term interest rates has proven to be an excellent predictor of changes of economic activity in Canada. As a general rule, when long-term interest rates have been much above short-term rates, strong increases in output have followed within about a year; however, whenever the yield curve has been inverted for any extended period of time, a recession has followed. Similar findings exist for other countries, including the United States. But although Canadian and U.S. interest rates generally move quite closely together, the Canadian yield curve has been distinctly better at predicting future Canadian output. The explanation given for this result is that the term spread has reflected both current monetary conditions, which affect short-term interest rates, and expected real returns on investment and expectations of inflation, which are the main determinants of long-term rates. This article is mainly a summary of econometric work done at the Bank. It also touches on some of the extensive recent literature in this area.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Interest rates,
Monetary and financial indicators
December 8, 1994
Some macroeconomic implications of rising levels of government debt
The level of government debt in Canada relative to gross domestic product has risen steadily since the mid-1970s. Canada has not been alone in experiencing rising government indebtedness, but in comparison to other countries, Canada's debt load is now distinctly on the high side. The author reviews some of the effects of rising government debt levels on macroeconomic performance and provides some calculations aimed at illustrating their possible long-run impact on the Canadian economy. His analysis, which is based on a model of the Canadian economy used at the Bank of Canada, suggests that higher levels of government debt reduce both the level of output and the share of output that is available for domestic consumption. The central policy implication is that there are substantial benefits to halting the rise in government debt and thus preventing further erosion of consumption opportunities.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Fiscal policy,
Recent economic and financial developments