Search

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.

We summarize the theoretical model of central bank asset purchases developed in Cimon and Walton (2022). The model helps us understand how asset purchases ease pressures on investment dealers to restore market conditions in a crisis.

This section of the Financial System Review examines the recent performance of the Canadian financial system and the factors, both domestic and international, that are influencing it.

When China joined the World Trade Organization in December 2001, it marked a watershed for the world economy. Ten years from now, the opening of China’s capital account and the financial integration that will unfold will be viewed as a milestone of similar importance.

This paper studies the capital accumulation and welfare implications of reducing capital income taxation in a general equilibrium economy with uninsurable investment risks.

Using Bayesian methods, we estimate a small open economy model in which consumers face limits to credit determined by the value of their housing stock. The purpose of this paper is to quantify the role of collateralized household debt in the Canadian business cycle.

In recent years, the Bank has put renewed emphasis on analyzing monetary variables and on developing models that incorporate money as an active part of the transmission mechanism. In this article, Dinah Maclean describes how the monetary aggregates are used in the formulation of monetary policy analysis at the Bank, outlining the key tools and models used. The most important money-based model currently in use is the M1-VECM. In this model, deviations in the money supply from the long-term demand for money cause changes in inflation. The author briefly describes the "active-money" paradigm underlying this model and explains the key equations within it. Other simpler empirical models are also outlined, including single-equation indicator models for output based on the narrow aggregates, a neural network, and a model based on the broader aggregate M2++. A detailed technical annex provides details on model equations and coefficient values.

Cash is the preferred method of payment for small value transactions generally less than $25. We provide insight to this finding with a new theoretical model that characterizes and compares consumers’ costs of paying with cash to paying with cards for each transaction.

Entrepreneurship is a key factor in promoting growth in output and employment. Consequently, to encourage new start-ups, most governments in developed countries have public venture capital programs.