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786 result(s)

November 17, 2001

Predictability of Average Inflation over Long Time Horizons

Uncertainty about the level of future inflation adversely affects the economy because it distorts the savings and investment decisions of households and businesses. Since these decisions typically involve planning horizons of many years, the adverse effects from inflation uncertainty can be reduced by adopting a policy framework that makes future inflation more predictable over long time horizons. When the inflation-control target was renewed in May 2001, the agreement affirmed that monetary policy will be directed at moving inflation to the 2 per cent midpoint of the target range over a six-to-eight-quarter horizon. The author describes how this policy commitment increases the predictability of average inflation over periods longer than one year. This relationship is illustrated using the Canadian experience from the inflation-targeting period.
November 16, 2001

Factors Affecting Regional Economic Performance in Canada

This article examines three shocks that affected Canada's economy over the past year from a regional perspective. The downturn in the U.S. economy, high energy prices, and low lumber prices affected Canada's regions to varying degrees. The relative size of the various economic sectors in each region is important in determining the intensity of a region's response to an economic shock. The article presents some stylized facts on the sectoral mix of each region followed by an analysis of the effects of the three shocks on the regional economies. An outlook is presented, which highlights the results of the survey by the Bank's regional offices in the summer of 2001.
November 15, 2001

Conference Summary: Revisiting the Case for Flexible Exchange Rates

This article summarizes the proceedings of an international research conference hosted by the Bank of Canada in November 2000. The conference marked the fiftieth anniversary of Canada's adoption of a flexible exchange rate, and its title recognizes the seminal contribution of Professor Milton Friedman's article "The Case for Flexible Exchange Rates." His keynote address to the conference is also summarized in the article. The conference papers re-examine many of the arguments raised by Friedman using recent developments in economic theory and econometric techniques. They investigate the experience of a wide range of industrialized and emerging-market economies. The main findings are that a strong case can be made for flexible exchange rates in economies that are large commodity exporters and that have credible low-inflation monetary policies and relatively well-developed financial systems.

Evaluating Factor Models: An Application to Forecasting Inflation in Canada

Staff Working Paper 2001-18 Marc-André Gosselin, Greg Tkacz
This paper evaluates the forecasting performance of factor models for Canadian inflation. This type of model was introduced and examined by Stock and Watson (1999a), who have shown that it is quite promising for forecasting U.S. inflation.

L'effet de la richesse sur la consommation aux États-Unis

Staff Working Paper 2001-14 Yanick Desnoyers
The substantial growth in wealth over the course of the second half of the 1990s generated the equivalent of a certain level of savings, while simultaneously causing household savings rates to fall significantly. The author seeks to explain this decline in savings, observed since 1995, using the methodology developed by King, Plosser, Stock, and Watson (1991).
Content Type(s): Staff research, Staff working papers Topic(s): Domestic demand and components JEL Code(s): E, E2, E21
August 17, 2001

The Changing Effects of Energy-Price Shocks on Economic Activity and Inflation

In this article the author examines the effects that major changes in energy prices in recent years have had on inflation and on the pace of economic expansion. These are then compared with the effects of the oil-price shocks that occurred in the 1970s and early 1980s. Changes in the intensity of energy use are examined, as well as developments in Canada's merchandise trade surplus in energy commodities and products. The author also considers the effects that a monetary policy anchored to low and stable inflation could have on price-setting behaviour and thus on the pass-through of higher energy costs to core inflation in Canada and in other industrial countries.

The Zero Bound on Nominal Interest Rates: How Important Is It?

Staff Working Paper 2001-6 David Amirault, Brian O'Reilly
This paper surveys the literature on the zero bound on the nominal interest rate. It addresses questions ranging from the conditions under which the zero bound on the nominal interest rate might occur to policy options to avoid or use to exit from such a situation. We discuss literature that examines historical and country evidence, and literature that uses models to generate evidence on this question.

Reactions of Canadian Interest Rates to Macroeconomic Announcements: Implications for Monetary Policy Transparency

Staff Working Paper 2001-5 Toni Gravelle, Richhild Moessner
In this study we statistically quantify the reactions of Canadian and U.S. interest rates to macroeconomic announcements released in Canada and in the United States. We find that Canadian interest rates react very little to Canadian macroeconomic news and are significantly affected by U.S. macroeconomic news, which indicates that international influences on the Canadian fixed-income markets are important.

On Commodity-Sensitive Currencies and Inflation Targeting

Staff Working Paper 2001-3 Kevin Clinton
Two aspects of the recent monetary history of Canada, Australia, and New Zealand stand out: the sensitivity of their dollars to prices of resource-based commodities, and inflation targeting. This paper explores various aspects of these phenomena.
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