September 11, 2009 Bank of Canada Review - Autumn 2009 Bank of Canada liquidity actions in response to the financial market turmoil; understanding corporate bond spreads using credit default swaps; review of the conflicts of interest between participants in the securitization process highlighting the most recent policy measures and potential solutions for ameliorating these agency issues. Content Type(s): Publications, Bank of Canada Review
May 10, 1996 Financing activities of provincial governments and their enterprises Bank of Canada Review - Spring 1996 Philip Wooldridge This article examines the changes that have occurred in the composition of funds raised by provincial borrowers during the 1990s. Higher financing requirements, coupled with the declining availability of funds from non-market sources such as the Canada Pension Plan, led provincial governments and their Crown corporations to broaden and to diversify their debt management programs. In particular, provincial borrowers expanded their presence in foreign bond markets, increased their issuance of floating-rate debt, and incorporated a wide variety of innovative debt instruments into their borrowing programs in order to minimize their borrowing costs and to manage the risks associated with the issuing of debt. As a result, the composition of funds raised by provincial borrowers during the 1990s differed markedly from that of the previous decade: between 1990 and 1995, provincial borrowing requirements were met almost entirely through the issuance of marketable debt, and net new foreign currency debt issues averaged nearly 50 per cent of funds raised, whereas between 1980 and 1989, non-market sources provided close to 30 per cent of funds raised, and net new foreign currency debt issues provided less than 20 per cent. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Debt management, Fiscal policy
May 11, 1996 Recent developments in monetary aggregates and their implications Bank of Canada Review - Spring 1996 Louis-Robert Lafleur, Walter Engert In 1995, the broad aggregate M2+ grew at an annual rate of 4.5 per cent—almost twice the rate recorded in 1994—as competition from mutual funds drew less money from personal savings deposits. An adjusted M2+ aggregate, which internalizes the effect of close substitutes such as CSBs and certain mutual funds, grew by only 3.4 per cent. Gross M1 grew by 8.2 per cent during the year, reflecting an increased demand for transactions balances as market interest rates declined and as banks offered more attractive rates of interest on corporate current account balances. The robust growth of gross M1 in the second half of 1995 suggests a moderate expansion of economic activity in the first half of 1996, while moderate growth in the broad aggregates indicates a rate of monetary expansion consistent with continued low inflation. In this annual review of the monetary aggregates, the authors also introduce a new model, based on calculated deviations of M1 from its long-run demand, which suggests that inflation should remain just below the midpoint of the inflation-control target range over the next couple of years. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Monetary aggregates, Recent economic and financial developments
November 9, 1994 The Bank of Canada's new Quarterly Projection Model (QPM): An introduction Bank of Canada Review - Autumn 1994 Stephen S. Poloz, David Rose, Robert Tetlow This article provides an overview of the Bank of Canada's new economic model, the Quarterly Projection Model (QPM), which has been under development at the Bank since 1989. The model has two roles. It is used to make economic projections, which are conducted quarterly and form an important basis for discussions of monetary policy between staff and senior management. QPM is also a research tool: it was developed to analyse important changes to the economy or macroeconomic policies which require a deeper understanding of long-term economic forces. The model pays particular attention to factors shaping long-term equilibrium, such as stocks of wealth, capital, government debt and net foreign assets. Various sources of dynamics, including the adjustment of forward-looking expectations, operate to determine the transition path to equilibrium and the consistency of expectations. The article discusses the history of QPM and earlier economic models at the Bank, and provides a simple overview of how the model works. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Economic models
Alternative Optimized Monetary Policy Rules in Multi-Sector Small Open Economies: The Role of Real Rigidities Staff Working Paper 2010-9 Carlos De Resende, Ali Dib, Maral Kichian Inflation-targeting central banks around the world often state their inflation objectives with regard to the consumer price index (CPI). Yet the literature on optimal monetary policy based on models with nominal rigidities and more than one sector suggests that CPI inflation is not always the best choice from a social welfare perspective. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Inflation targets, Inflation: costs and benefits, Monetary policy framework, Monetary policy implementation JEL Code(s): E, E4, E5, E52, F, F3, F4
What Drives Exchange Rates? New Evidence from a Panel of U.S. Dollar Bilateral Exchange Rates Staff Working Paper 2010-5 Jean-Philippe Cayen, Donald Coletti, René Lalonde, Philipp Maier We use a novel approach to identify economic developments that drive exchange rates in the long run. Using a panel of six quarterly U.S. bilateral real exchange rates – Australia, Canada, the euro, Japan, New Zealand and the United Kingdom – over the 1980-2007 period, a dynamic factor model points to two common factors. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Exchange rates JEL Code(s): J, J3, J31
Statistical Confidence Intervals for the Bank of Canada's Business Outlook Survey Staff Discussion Paper 2010-7 Daniel de Munnik While a number of central banks publish their own business conditions indicators that rely on non-random sampling, knowledge about their statistical accuracy has been limited. Content Type(s): Staff research, Staff discussion papers Topic(s): Business fluctuations and cycles, Central bank research, Regional economic developments JEL Code(s): C, C4, C46, C8, C81
Prospects for Global Current Account Rebalancing Staff Discussion Paper 2010-4 Kimberly Beaton, Carlos De Resende, René Lalonde, Stephen Snudden The authors use the Bank of Canada's version of the Global Economy Model, a multi-country, multi-sector dynamic stochastic general-equilibrium model with an active banking system (the BoC-GEM-FIN), to study the evolution of global current account balances following the recent global financial crisis. Content Type(s): Staff research, Staff discussion papers Topic(s): Balance of payments and components, Business fluctuations and cycles, International topics, Recent economic and financial developments JEL Code(s): E, E2, E21, F, F0, F01, F3, F32
August 12, 1998 The declining supply of treasury bills and the Canadian money market Bank of Canada Review - Summer 1998 Serge Boisvert, Nancy Harvey The supply of treasury bills has fallen considerably since 1995, reflecting a decline in the financing needs of the Canadian government and a change in its debt-management strategy. This has had a major impact on different segments of the money market. Among the various implications of this development, the authors point out the decrease in turnover and, hence, liquidity in the treasury bill market since 1995, as well as high rates of growth in the market for short-term interest rate derivatives and for short-term asset-backed securities. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial markets
May 11, 1998 The use of forward rate agreements in Canada Bank of Canada Review - Spring 1998 Jean-Yves Paquette, David Stréliski In this article, the authors identify forward rate agreements, or FRAs, as short-term interest rate guarantee instruments negotiated by two parties, one of which is typically a bank. In outlining the main features of FRAs, the authors contrast them with BAX contracts (futures contracts on bankers' acceptances that are negotiated through the Montreal Exchange). The article then describes how market participants use FRAs to cover short-term interest rate risk. The final section deals with the way the Bank of Canada uses information from the FRA market as an indicator of interest rate expectations. Econometric models used to retrieve information from FRA rates, as well as the underlying assumptions, are discussed in an appendix. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial markets, Monetary and financial indicators