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McCallum (1994a) proposes a monetary rule where policymakers have some tendency to resist rapid changes in exchange rates to explain the forward premium puzzle.

This paper shows that real effective exchange rate (REER) regressions, the standard approach for estimating the response of aggregate exports to exchange rate changes, imply biased estimates of the underlying elasticities. We provide a new aggregate regression specification that is consistent with bilateral trade flows micro-founded by the gravity equation.

In this paper, we measure, with Canadian data, the scope of the revisions to real-time estimates of the output gap generated with several univariate and multivariate techniques. We also make an empirical evaluation of the usefulness of the output gap estimates for predicting inflation.

This analytical note examines how much of the systematic variation in the Canadian dollar is attributable to its sensitivity to commodity prices. We introduce a new “oil” portfolio that captures systematic variations when the exchange rates of commodity exporters and commodity importers move in opposite directions.

An income trust is an investment vehicle that distributes cash generated by a set of operating assets in a tax-efficient manner. The market capitalization of income trusts has grown rapidly over the past two years, reaching $45 billion at year-end 2002.

Recent studies in monetary theory show that if buyers can use lotteries to signal the quality of bank notes, counterfeiting does not occur in a pooling equilibrium. In this paper, I investigate the robustness of this non-existence result by considering an alternative trading mechanism.

This paper compiles the contemporary view on three major Canadian-led trade policies that have marked Canada’s economic history since Confederation: the National Policy (1879), the Canada–US Agreement on Automotive Products (Auto Pact, 1965) and the Canada–US Free Trade Agreement (FTA, 1989, including its extension to the North American Free Trade Agreement, NAFTA, 1994).

This paper empirically examines how dispersions across investors beliefs influence traders order submission decisions in the foreign exchange market. Previous research has found that dispersion in traders beliefs regarding future macroeconomic announcements has a significant impact on both price dynamics and trading volume before the announcements in the foreign exchange and other financial markets.

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.

We examine how intermediary capitalization affects asset prices in a framework that allows for intermediary market power. We introduce a model in which capital-constrained intermediaries buy or trade an asset in an imperfectly competitive market, and we show that weaker capital constraints lead to both higher prices and intermediary markups.