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A number of authors have suggested that economies face a long-run inflation-unemployment trade-off due to downward nominal-wage rigidity. This theory has implications for the nature of the short-run Phillips curve when wage inflation is low.

This paper assesses the expectations theory for the longer end of the term structure of Canadian interest rates using three empirical approaches that have received attention in the literature: (i) cointegration tests of the long-run unbiasedness hypothesis; (ii) simulations of a theoretical long-term yield that is consistent with the expectations hypothesis, and (iii) ex post […]

Price controls, or caps, can lead to shortages, as 1970’s gasoline price controls illustrate. One million trades show that the market for borrowing bonds in Canada has an implicit price cap: traders are willing to pay no more than the overnight interest rate to borrow a bond. This suggests the probability of a shortage increases when interest rates are very low.

Can Bitcoin survive? Some say it will become vulnerable to attacks as the rewards for processing Bitcoin transactions continue to decline. The economics of fixed costs suggest the specialized hardware used to mine Bitcoin may be key to its survival.

The author develops a twin crisis model featuring multiple banks.

This paper evaluates linear and non-linear forecast-combination methods. Among the non-linear methods, we propose a nonparametric kernel-regression weighting approach that allows maximum flexibility of the weighting parameters.

The conduct of monetary policy within an inflation-targeting framework requires the establishment of an inflation-target horizon, which is the average time it takes inflation to return to the target. Policy-makers have an interest in communicating this horizon, since it is likely to help anchor inflation expectations. This article focuses on the determination of the appropriate policy horizon by reporting on two recent Bank of Canada studies. The evidence suggests that the current target horizon of six to eight quarters remains appropriate. It is important to note that the duration of the optimal inflation-target horizon varies widely, depending on the combination of shocks to the economy. In rare cases when the financial accelerator is triggered by a persistent shock, such as an asset-price bubble, it may be appropriate to take a longer view of the inflation-target horizon.

Financial markets can experience sudden and extreme downward movements. Investors are highly concerned about the performance of their assets in such scenarios. Some assets perform badly in a downturn in the market; others have milder reactions.

This paper examines the ability of linear and nonlinear models to replicate features of real Canadian GDP. We evaluate the models using various business-cycle metrics.