November 14, 2013 Fragmentation in Canadian Equity Markets Bank of Canada Review - Autumn 2013 Corey Garriott, Anna Pomeranets, Joshua Slive, Thomas Thorn Changes in technology and regulation have resulted in an increasing number of trading venues in equity markets in Canada. New trading platforms have intensified price competition and have encouraged innovation, and they do not appear to have segmented trade. But the increasingly complex market structure has necessitated investments in expensive technology and has introduced new operational risks. Regulatory responses should be carefully adapted to retain the competition and innovation associated with this market fragmentation. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial institutions, Financial markets, Market structure and pricing JEL Code(s): G, G2, L, L1, L13, N, N2, N22
August 15, 2013 CSI: A Model for Tracking Short-Term Growth in Canadian Real GDP Bank of Canada Review - Summer 2013 André Binette, Jae Chang Canada’s Short-Term Indicator (CSI) is a new model that exploits the information content of 32 indicators to produce daily updates to forecasts of quarterly real GDP growth. The model is a data-intensive, judgment-free approach to short-term forecasting. While CSI’s forecasts at the start of the quarter are not very accurate, the model’s accuracy increases appreciably as more information becomes available. CSI is the latest addition to a wide range of models and information sources that the Bank of Canada uses, combined with expert judgment, to produce its short-term forecasts. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Econometric and statistical methods JEL Code(s): C, C5, C53, E, E1, E17, E3, E37
August 15, 2013 The Accuracy of Short-Term Forecast Combinations Bank of Canada Review - Summer 2013 Eleonora Granziera, Corinne Luu, Pierre St-Amant This article examines whether combining forecasts of real GDP from different models can improve forecast accuracy and considers which model-combination methods provide the best performance. In line with previous literature, the authors find that combining forecasts generally improves forecast accuracy relative to various benchmarks. Unlike several previous studies, however, they find that, rather than assigning equal weights to each model, unequal weighting based on the past forecast performance of models tends to improve accuracy when forecasts across models are substantially different. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Econometric and statistical methods JEL Code(s): C, C5, C52, C53, E, E3, E37
August 15, 2013 Monitoring Short-Term Economic Developments in Foreign Economies Bank of Canada Review - Summer 2013 Russell Barnett, Pierre Guérin The Bank of Canada uses several short-term forecasting models for the monitoring of key foreign economies - the United States, the euro area, Japan and China. The design of the forecasting models used for each region is influenced by the level of detail required, as well as the timeliness and volatility of data. Forecasts from different models are typically combined to mitigate model uncertainty, and judgment is applied to the model forecasts to incorporate information that is not directly reflected in the most recent indicators. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Business fluctuations and cycles JEL Code(s): E, E3, E37
August 15, 2013 Big Data Analysis: The Next Frontier Bank of Canada Review - Summer 2013 Nii Ayi Armah The formulation of monetary policy at the Bank of Canada relies on the analysis of a broad set of economic information. Greater availability of immediate and detailed information would improve real-time economic decision making. Technological advances have provided an opportunity to exploit “big data” - the vast amount of digital data from business transactions, social media and networked computers. Big data can be a complement to traditional information sources, offering fresh insight for the monitoring of economic activity and inflation. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Econometric and statistical methods, Monetary and financial indicators JEL Code(s): C, C5, C53, C6, C63, C8, C80
May 16, 2013 Unconventional Monetary Policies: Evolving Practices, Their Effects and Potential Costs Bank of Canada Review - Spring 2013 Lena Suchanek, Eric Santor Following the recent financial crisis, major central banks have introduced several types of unconventional monetary policy measures, including liquidity and credit facilities, asset purchases and forward guidance. To date, these measures appear to have been successful. They restored market functioning, facilitated the transmission of monetary policy and supported economic activity. They have potential costs, however, including challenges related to the greatly expanded balance sheets of central banks and the eventual exit from these measures, as well as the vulnerabilities that can arise from prolonged monetary accommodation. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Central bank research, Financial markets, International topics, Monetary policy framework JEL Code(s): E, E5, E52, E58, E6, E65
May 16, 2013 Explaining Canada’s Regional Migration Patterns Bank of Canada Review - Spring 2013 David Amirault, Daniel de Munnik, Sarah Miller Understanding the factors that determine the migration of labour between regions is crucial for assessing the economy’s response to macroeconomic shocks and identifying policies that will encourage an efficient reallocation of labour. By examining the determinants of migration within Canada from 1991 to 2006, this article provides evidence that regional differences in employment rates and household incomes tend to increase labour migration, and that provincial borders and language differences are barriers to migration. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Econometric and statistical methods, Labour markets, Regional economic developments JEL Code(s): J, J6, J61, R, R2, R23
May 16, 2013 Modelling the Asset-Allocation and Liability Strategy for Canada’s Foreign Exchange Reserves Bank of Canada Review - Spring 2013 Francisco Rivadeneyra, Jianjian Jin, Narayan Bulusu, Lukasz Pomorski The Bank of Canada recently developed an asset-liability-matching model to aid in the management of Canada’s foreign exchange reserves. The model allows policy-makers at the Bank and the Department of Finance to analyze asset-allocation and funding-mix decisions by quantifying both the risk-return and liquidity trade-offs for the assets, as well as the risk-cost trade-offs of the funding liabilities. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Debt management, Foreign reserves management JEL Code(s): F, F3, F31, G, G1, G11, G18
February 21, 2013 The G-20 Framework for Strong, Sustainable and Balanced Growth: Macroeconomic Coordination Since the Crisis Bank of Canada Review - Winter 2012-2013 Robert Lavigne, Subrata Sarker Since 2009, the G-20 Framework for Strong, Sustainable and Balanced Growth has provided a mechanism for international macroeconomic policy coordination. The Framework has had some successes, including agreement on objectives for fiscal consolidation. However, post-crisis global growth has been neither strong nor balanced. Progress has also been slow in developing credible fiscal consolidation plans in some advanced countries and in increasing exchange rate flexibility in certain emerging economies. A stronger peer review process and enhanced analysis of international spillovers would increase the Framework’s influence on member policies. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Exchange rate regimes, Fiscal policy, International topics, Recent economic and financial developments JEL Code(s): E, E6, E61, F, F5, F53, F55
February 21, 2013 The U.S. Recovery from the Great Recession: A Story of Debt and Deleveraging Bank of Canada Review - Winter 2012-2013 Brady Lavender, Nicolas Parent The U.S. recovery from the Great Recession has been slow relative to other postwar-era recoveries in the United States. Encouraged by loose lending standards in the pre-crisis period, U.S. households took on unsustainable amounts of debt, making them vulnerable to adverse shocks. Subsequently, a considerable drop in asset prices forced households to repair their balance sheets. While there has been progress in household deleveraging, the government sector now needs to delever, which will restrain growth over the next few years. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Business fluctuations and cycles, International topics, Recent economic and financial developments JEL Code(s): E, E2, E21, E6, E60