August 14, 2000 Approaches to Current Stock Market Valuations Bank of Canada Review - Summer 2000 Bob Hannah The increase in North American stock prices in 1999 and early 2000 has generated interest in the valuation assumptions that would make these price levels sustainable. Here, commonly used valuation techniques are applied to stock markets in Canada and the United States. For the comparative yield approach, real interest rates (rather than nominal rates) are preferred as the comparator of choice to yields on stock market indexes. The spreads between real interest rates and stock market yields have generally increased over the last two years. The dividend-discount model (DDM) approach provides an analytic linkage between the equity-risk premium and the expected growth of dividends. It suggests that market values (measured at the end of February 2000) could be sustained only by rapid growth of dividends in the future or by the continued assumption of an uncharacteristically low risk premium on equity. The spectacular rise in the value of technology stocks in 1999 is noted (Chart 4), and then the valuation measures for the Canadian stock market excluding the technology sector are examined. When this is done with the comparative yield approach, yield spreads are slightly lower, and for the DDM approach, one does not need to assume as high a growth of dividends or as low a risk premium to validate market valuations. Two effects of the "new economy" on the stock market are noted. One is the lowering of dividend yields, as new-economy technology companies tend to have a high reinvestment rate and a low dividend payout rate. Another relates to the potential for a higher track for the economy's productivity growth, which would mean that higher-than-historical assumptions about future earnings growth would be more plausible. Several explanations for the decline in risk premiums on equity are considered. While short-term volatility in the stock market has, if anything, increased in recent years, low inflation and improved economic performance, along with demographics and investor preferences, may have contributed to a decline in the risk premium demanded by investors. A scenario of rapid growth of dividends in the near term slowing to historical norms in the longer term is examined. While this approach can go partway towards explaining high stock market valuations, it requires assumptions that are outside historical experience. Content Type(s): Publications, Bank of Canada Review articles Research Topic(s): Financial markets, Market structure and pricing
October 22, 2003 Monetary Policy Report – October 2003 In the April Monetary Policy Report, the Bank noted that inflation was well above its 2 per cent target and that short-term inflation expectations had edged up. Content Type(s): Publications, Monetary Policy Report
May 9, 1996 The role of inventory management in Canadian economic fluctuations Bank of Canada Review - Spring 1996 Hung-Hay Lau Swings in inventory investment have traditionally played a major role in Canadian business cycles. However, advances in inventory-control techniques and the reduced uncertainty associated with lower inflation have enabled firms to manage their inventories much more tightly and effectively. This article examines recent developments in the management of non-farm business inventories in Canada at both the aggregate and the sectoral level and looks at implications for the role of inventories as a source of economic fluctuation. Content Type(s): Publications, Bank of Canada Review articles Research Topic(s): Domestic demand and components
July 27, 2010 Planning an Evolution: The Story of the Canadian Payments Association, 1980-2002 by James F. Dingle. Outlines the history of the Association and its role in moving Canada's payments system from paper to electronic media. Content Type(s): Publications, Books and monographs
Nonparametric Identification of Incomplete Information Discrete Games with Non-equilibrium Behaviors Staff Working Paper 2022-22 Erhao Xie This paper jointly relaxes two assumptions in the literature that estimates games. These two assumptions are the parametric restriction on the model primitives and the restriction of equilibrium behaviors. Without imposing the above two assumptions, this paper identifies the primitives of the game. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods JEL Code(s): C, C5, C57
The Effects of Government Licensing on E-commerce: Evidence from Alibaba Staff Working Paper 2021-32 Ginger Zhe Jin, Zhentong Lu, Xiaolu Zhou, Chunxiao Li How does government licensing affect selling on online platforms? We examine the impact of China’s 2015 Food Safety Law on sellers and buyers on Alibaba, the largest e-commerce platform in that country. Content Type(s): Staff research, Staff working papers Research Topic(s): Market structure and pricing, Recent economic and financial developments JEL Code(s): D, D8, D82, K, K2, K23, L, L5, L8, L81
Relative Prices, Trading Gains, and Real GDI: The Case of Canada Staff Discussion Paper 2009-4 Yi Zheng Treating imports as intermediate inputs to domestic production, the author adopts the translog function approach to model real gross domestic income (GDI) in Canada over the 1961–2006 period. She explores the role of price ratios, such as terms of trade and the real effective exchange rate, in explaining changes in real GDI, trade openness, trade […] Content Type(s): Staff research, Staff discussion papers Research Topic(s): Econometric and statistical methods, Productivity JEL Code(s): C, C4, C43, D, D3, D33, F, F1, F10, O, O4, O47
L'endettement du Canada et ses effets sur les taux d'intérêt réels de long terme Staff Working Paper 1996-14 Jean-François Fillion This paper examines the effects that Canada's indebtedness has on Canadian real long-term interest rates, using the vector error-correction model (VECM). Our results show that there is a strongly cointegrated relationship between real interest rates in Canada, U.S. real interest rates, and Canadian public and external debt ratios. Content Type(s): Staff research, Staff working papers Research Topic(s): Fiscal policy, Interest rates JEL Code(s): E, E4, E43, F, F3, F30, H, H6, H60
Trading for Bailouts Staff Working Paper 2020-23 Toni Ahnert, Caio Machado, Ana Elisa Pereira In times of high uncertainty, governments often implement interventions such as bailouts to financial institutions. To use public resources efficiently and to avoid major spillovers to the rest of the economy, policy-makers try to identify which institutions should receive assistance. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial markets, Financial system regulation and policies, Lender of last resort JEL Code(s): D, D8, D83, G, G1, G12, G14, G18
June 13, 2025 Bank of Canada Disclosure of Climate-Related Risks 2024 This report lays out elements of the Bank’s strategy related to climate change and details how the issue will be managed holistically across the organization, following the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. Content Type(s): Publications, Disclosure of Climate-Related Risks