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449
result(s)
November 23, 2004
Real Return Bonds: Monetary Policy Credibility and Short-Term Inflation Forecasting
The break-even inflation rate (BEIR) is calculated by comparing the yields on conventional and Real Return Bonds. Defined as the average rate of inflation that equates the expected returns on these two bonds, the BEIR has the potential to contain useful information about long-run inflation expectations. Yet the BEIR has been higher, on average, and more variable than survey measures of inflation expectations, which may be explained by the effects of premiums and distortions embedded in the BEIR. Because of the difficulty in accounting for these distortions, the BEIR should not be given a large weight as a measure of long-run inflation expectations at this time. However, as the Real Return Bond market continues to develop, the BEIR should become a more useful indicator of inflation expectations. At present, it demonstrates no clear advantage over survey measures and even past inflation rates in forecasting near-term inflation.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Inflation and prices,
Interest rates,
Market structure and pricing
November 22, 2004
The Evolving Financial System and Public Policy: Conference Highlights and Lessons
At the 12th annual Bank of Canada economic conference, held in Ottawa on 4 and 5 December 2003, representatives from various public and private organizations and Bank of Canada staff discussed papers presented on three key issues affecting the financial system: financial contagion, the implications of bank diversification, and financial sector regulation. Papers on financial contagion studied the effect of globalization on Canadian foreign-asset exposures, developed a general-equilibrium model of a competitive interfirm lending market in which firms can borrow or lend, and used market-based indicators to determine the probability that contagion can be generated by interbank exposures. The papers on bank diversification focused on the links between the changing behaviour of financial institutions and risk-return trade-offs. Issues of financial sector regulation included the relationship between governance and financial sector soundness, the theoretical basis of bank regulations for capital requirements, and the implications of bank capital requirements for the transmission of monetary policy. A panel discussion provided extended discussion of the conference papers.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Financial institutions,
Financial markets,
Financial services
Real Return Bonds, Inflation Expectations, and the Break-Even Inflation Rate
Staff Working Paper 2004-43
Ian Christensen,
Christopher Reid,
Frédéric Dion
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.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Inflation and prices,
Interest rates,
Market structure and pricing
JEL Code(s):
E,
E3,
E31,
E4,
E43
International Equity Flows and Returns: A Quantitative Equilibrium Approach
Staff Working Paper 2004-42
Rui Albuquerque,
Martin Schneider,
Gregory Bauer
The authors model trading by foreign and domestic investors in developed-country equity markets.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Financial markets,
International topics,
Market structure and pricing
JEL Code(s):
F,
F3,
F30,
G,
G1,
G12,
G14,
G15
August 24, 2004
The Efficiency of Canadian Capital Markets: Some Bank of Canada Research
Capital markets and their related financial instruments make an important contribution to the welfare of Canadians. The Bank of Canada is interested in the efficient functioning of capital markets through each of its responsibilities for monetary policy, the financial system, and funds management. Hendry and King highlight the key findings of Bank research published over the past year that addresses capital market efficiency and summarize lessons that have been learned. The research conducted thus far suggests that Canadian capital markets are efficient for a capital market of Canada's size but are less diverse than the U.S. capital markets, indicating that there is room for improvement in certain areas.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Financial markets,
Financial services,
Interest rates,
Market structure and pricing
August 23, 2004
The Evolution of Liquidity in the Market for Government of Canada Bonds
Using turnover ratios, Anderson and Lavoie describe the recent evolution of liquidity in various secondary government bond markets, focusing specifically on the market for Government of Canada securities. They attribute much of the recent variation in liquidity to such cyclical factors as changes in the interest rate environment and investors' appetite for risk, as well as developments in equity markets in the late 1990s. They also examine longer-term structural and policy-related trends, including the rate of adoption of financial and technological innovations and the level of government borrowing and debt-management initiatives.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Debt management,
Financial markets,
Recent economic and financial developments
Uninsurable Investment Risks
Staff Working Paper 2004-29
Césaire Meh,
Vincenzo Quadrini
The authors study a general-equilibrium economy in which agents have the ability to invest in a risky technology.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Economic models,
Financial institutions,
Financial markets
JEL Code(s):
D,
D3,
D31,
E,
E2,
E21,
G,
G0
Competition in Banking: A Review of the Literature
Staff Working Paper 2004-24
Carol Ann Northcott
The author reviews the theoretical and empirical literature to examine the traditional perception that the following trade-off exists between economic efficiency and stability in the banking system: a competitive banking system is more efficient and therefore important to growth, but market power is necessary for stability in the banking system.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Financial institutions,
Financial services,
Market structure and pricing
JEL Code(s):
G,
G2,
G21,
G28,
L,
L1,
L11,
L12,
L13,
L16
Commodity-Linked Bonds: A Potential Means for Less-Developed Countries to Raise Foreign Capital
Staff Working Paper 2004-20
Joseph Atta-Mensah
The author suggests that commodity-linked bonds could provide a potential means for less-developed countries (LDCs) to raise money on the international capital markets, rather than through standard forms of financing.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Development economics,
Financial markets,
International topics
JEL Code(s):
F,
F3,
F30,
F34,
F4,
F49,
G,
G1,
G11,
G13,
O,
O1,
O16