Search

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 […]

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.

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.

The author develops a twin crisis model featuring multiple banks.

The financial system makes an important contribution to the welfare of all Canadians. The ability of households and firms to confidently hold and transfer financial assets is one of the fundamental building blocks of the Canadian economy.

A significant body of empirical studies demonstrates sizable national border effects in foreign trade of Canadian provinces throughout the 1980s and 1990s. This paper revisits and expands the scope of the border effects analysis by estimating the border effect in trade with U.S. states as well as countries in the European Union (EU) and the G 20 using more recent data from 2001–10.

This paper examines the empirical performance of alternatives to the monetary aggregates currently published by the Bank of Canada. The results show that real M1 and real M1a perform about equally well in providing leading information about real output at short horizons. However, on theoretical grounds, M1a is a more attractive aggregate, since it excludes […]

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.

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.

Flood, Morin, and Kolet examine the role of house prices in household consumption decisions. Considering a group of advanced economies, the authors find that the strength of the link between house prices and consumer spending depends on the institutional features of national mortgage markets.