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3045 Results

November 14, 1998

Lower inflation: Benefits and costs

The federal government and the Bank of Canada have been committed for some time to achieving and maintaining price stability as a way to foster a rising standard of living for all Canadians. To support this objective, the inflation-control target range of 1 to 3 per cent was recently extended through to the end of 2001. By then, the government and the Bank plan to announce a long-run target for monetary policy. In this article, the authors provide an overview of the most recent empirical evidence on the benefits of lower inflation. They draw on an extensive earlier survey and on work presented at two recent conferences on price stability hosted by the Bank of Canada. They find that, when inflation and tax interactions are taken into account, there are large benefits to lowering inflation. When these benefits are compared with the transitional costs associated with lowering inflation, significant positive benefits remain. However, the authors note that the extension of the inflation-control targets to the end of 2001 allows further research to ensure an operational definition of price stability that will help Canadians achieve a high standard of living.

What Does the Risk-Appetite Index Measure?

Staff Working Paper 2003-23 Miroslav Misina
Explanations of changes in asset prices as being due to exogenous changes in risk appetite, although arguably controversial, have been popular in the financial community and have also received some attention in attempts to account for recent financial crises. Operational versions of these explanations are based on the assumption that changes in asset prices can be decomposed into a part that can be attributed to changes in riskiness and a part attributable to changes in risk aversion, and that some quantitative measure can capture these effects in isolation.
Content Type(s): Staff research, Staff working papers Research Topic(s): Economic models, Financial markets JEL Code(s): G, G1, G12

Cash, COVID-19 and the Prospects for a Canadian Digital Dollar

Staff Discussion Paper 2022-17 Walter Engert, Kim Huynh
We provide an analysis of cash trends in Canada before and during the COVID-19 pandemic. We also consider the potential two scenarios for issuance of a central bank digital currency in Canada: the emergence of a cashless society or the widespread use of an alternative digital currency in Canada. Finally, we discuss the Canadian experience in maintaining cash as an efficient and accessible method of payment and store of value.

The “Too Big to Fail” Subsidy in Canada: Some Estimates

Staff Working Paper 2018-9 Patricia Palhau Mora
Implicit government guarantees of banking-sector liabilities reduce market discipline by private sector stakeholders and temper the risk sensitivity of funding costs. This potentially increases the likelihood of bailouts from taxpayers, especially in the absence of effective resolution frameworks.
Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial stability JEL Code(s): G, G1, G13, G2, G21, G28

The Federal Reserve's Dual Mandate: A Time-Varying Monetary Policy Priority Index for the United States

Staff Working Paper 2006-11 René Lalonde, Nicolas Parent
In the United States, the Federal Reserve has a dual mandate of promoting stable inflation and maximum employment. Since the Fed directly controls only one instrument - the federal funds rate - the authors argue that the Fed's priorities continuously alternate between inflation and economic activity.

The Microstructure of Multiple-Dealer Equity and Government Securities Markets: How They Differ

Staff Working Paper 2002-9 Toni Gravelle
Although dealership government and equity securities have, on the surface, similar market structures, the author demonstrates that some subtle differences exist between them that are likely to significantly affect the way market-makers trade, and as such have an impact on the liquidity that they provide.

On What States Do Prices Depend? Answers from Ecuador

Staff Working Paper 2016-43 Craig Benedict, Mario J. Crucini, Anthony Landry
In this paper, we argue that differences in the cost structures across sectors play an important role in firms’ decisions to adjust their prices. We develop a menu-cost model of pricing in which retail firms intermediate trade between producers and consumers.
Content Type(s): Staff research, Staff working papers Research Topic(s): Inflation and prices, Monetary policy transmission JEL Code(s): E, E3, E5, F, F3, F33
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