June 2, 2006 Another Look at the Inflation-Target Horizon Bank of Canada Review - Summer 2006 Donald Coletti, Jack Selody, Carolyn A. Wilkins 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. Content Type(s): Publications, Bank of Canada Review articles Research Topic(s): Inflation targets, Monetary policy framework, Monetary policy transmission
International Business Cycles and Financial Frictions Staff Working Paper 2012-19 Wen Yao This paper builds a two-country DSGE model to study the quantitative impact of financial frictions on business cycle co-movements when investors have foreign asset exposure. The investor in each country holds capital in both countries and faces a leverage constraint on her debt. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, International financial markets, International topics JEL Code(s): E, E3, E30, F, F4, F42, F44
Banks’ Financial Distress, Lending Supply and Consumption Expenditure Staff Working Paper 2014-7 H. Evren Damar, Reint Gropp, Adi Mordel The paper employs a unique identification strategy that links survey data on household consumption expenditure to bank-level data in order to estimate the effects of bank financial distress on consumer credit and consumption expenditures. Content Type(s): Staff research, Staff working papers Research Topic(s): Credit and credit aggregates, Domestic demand and components, Financial institutions JEL Code(s): E, E2, E21, E4, E44, G, G0, G01, G2, G21
Fads or Bubbles? Staff Working Paper 1997-2 Huntley Schaller, Simon van Norden This paper tests between fads and bubbles using a new empirical strategy (based on switching-regression econometrics) for distinguishing between competing asset-pricing models. By extending the Blanchard and Watson (1982) model, we show how stochastic bubbles can lead to regime-switching in stock market returns. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets JEL Code(s): C, C4, C40, G, G1, G12
August 18, 2011 The BoC-GEM-Fin: Banking in the Global Economy Bank of Canada Review - Summer 2011 Carlos De Resende, René Lalonde This article describes the Bank of Canada’s version of the Global Economy Model structured to incorporate an active banking system that features an interbank market and cross-border lending. After describing the new model, the authors use it to examine the responses of selected U.S. and Canadian macroeconomic variables to a “credit crunch” in the United States and also to study the impact of changes in the regulatory limits to bank leverage in Canada. They also discuss the relative merits of a monetary policy framework based on inflation targeting and one based on price-level targeting in the presence of shocks to the U.S. and Canadian banking sectors. Content Type(s): Publications, Bank of Canada Review articles Research Topic(s): Economic models, Financial institutions, Financial system regulation and policies, Monetary policy framework
June 23, 2005 Efficiency and Economies of Scale of Large Canadian Banks Financial System Review - June 2005 Jason Allen, Ying Liu Content Type(s): Publications, Financial System Review articles
Affine Term-Structure Models: Theory and Implementation Staff Working Paper 2001-15 David Bolder Affine models describe the stylized time-series properties of the term structure of interest rates in a reasonable manner, they generalize relatively easily to higher dimensions, and a vast academic literature exists relating to their implementation. This combination of characteristics makes the affine class a natural introductory point for modelling interest rate dynamics. Content Type(s): Staff research, Staff working papers Research Topic(s): Debt management, Econometric and statistical methods, Interest rates JEL Code(s): C, C0, C5, G, G0
Evaluating Alternative Measures of the Real Effective Exchange Rate Staff Working Paper 1998-20 Robert Lafrance, Patrick Osakwe, Pierre St-Amant This paper discusses the merits and shortcomings of alternative price indices used in constructing real effective exchange rate indices and examines the effects of different weighting schemes. It also compares selected measures of the real effective exchange rate in terms of their ability to explain movements in Canadian net exports and real output. The paper […] Content Type(s): Staff research, Staff working papers
Downward Nominal Wage Rigidity, Inflation and Unemployment: New Evidence Using Micro‐Level Data Staff Analytical Note 2017-6 Dany Brouillette, Natalia Kyui Recent evidence suggests that the extent of downward nominal wage rigidity (DNWR) in the Canadian labour market has risen following the 2008–09 recession (see Brouillette, Kostyshyna and Kyui 2016). Content Type(s): Staff research, Staff analytical notes Research Topic(s): Econometric and statistical methods, Inflation and prices, Labour markets JEL Code(s): E, E2, E24, E3, E31, J, J3, J30
Money and Credit Factors Staff Working Paper 2006-3 Paul Gilbert, Erik Meijer The authors introduce new measures of important underlying macroeconomic phenomena that affect the financial side of the economy. Content Type(s): Staff research, Staff working papers Research Topic(s): Credit and credit aggregates, Econometric and statistical methods, Monetary aggregates JEL Code(s): C, C4, C43, C8, C82, E, E5, E51