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In this report, we evaluate several simple monetary policy rules in twelve private and public sector models of the Canadian economy. Our results indicate that none of the simple policy rules we examined is robust to model uncertainty, in that no single rule performs well in all models.

The authors examine the investment behaviour of a sample of small, credit-constrained firms in Sri Lanka. Using a unique panel-data set, they analyze and compare the activities of two groups of small firms distinguished by their different access to financing; one group consists of firms with heavily subsidized loans from the World Bank, and the other consists of firms without such subsidies.

When lenders cannot directly identify behavioural and rational borrowers, they use type scoring to track the likelihood of a borrower’s type. This leads to the partial pooling of borrowers, which results in rational borrowers subsidizing borrowing costs for behavioural borrowers. This, in turn, reduces the effectiveness of regulatory policies that target mistakes by behavioural borrowers.

Can regulators keep pace with banks’ creative regulatory workarounds? Our analysis unpacks the trade-offs between fixed regulations and crisis-triggered rules, showing that the latter are especially prone to circumvention—and can trigger larger, costlier bailouts.

We propose alternative single-equation semi-structural models for forecasting inflation in Canada, whereby structural New Keynesian models are combined with time-series features in the data. Several marginal cost measures are used, including one that in addition to unit labour cost also integrates relative price shocks known to play an important role in open-economies.

Recent evidence indicates that the intensity of economic exchange within and across borders is significantly different: linkages are much tighter within, than among, nation-states. These findings, however, do not necessarily imply that borders and separate national currencies represent significant barriers to trade that should be removed, since the evidence is also consistent with the alternative hypothesis, that domestic exchange is more efficient because domestic producers are better able to satisfy the requirements of local consumers, owing to common tastes and institutions and the existence of local information and social networks. Focusing primarily on trade linkages within and between Canada and the United States, the authors review the evidence on the extent to which national borders lessen the intensity of international economic linkages, primarily trade in goods and services, and the effects on domestic welfare. They also examine the evidence on the impact of common currencies on trade and welfare. They determine that, since the empirical models employed to date in this research cannot distinguish between alternative explanations of the evidence, it is not yet possible to draw firm conclusions for policy-making.

Most models in finance assume that agents make trading plans over the infinite future. We consider instead that they are boundedly rational and may only form forecasts over a limited horizon.

This paper introduces and estimates a structural model of the Canadian primary market for government debt. We assess the role of dealer exit in this market as a key reason for increased, yet irregular, customer entry and quantify the benefits of greater customer competition against the costs of higher market volatility.

I develop a method for Bayesian estimation of globally solved, non-linear macroeconomic models. The method uses a mixture density network to approximate the initial state distribution. The mixture density network results in more reliable posterior inference compared with the case when the initial states are set to their steady-state values.

This paper examines the behaviour of the Canadian dollar from 1997 to 1999 to see if there is any evidence of excess volatility or significant overshooting. A small econometric model of the exchange rate, based on market fundamentals, is presented and used to make tentative judgments about the extent to which the currency might have been systematically over- or undervalued.