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The workhorse DSGE model used for monetary policy evaluation is designed to capture business cycle fluctuations in an optimization-based format. It is commonplace to log-linearize models and express them with variables in deviation-from-steady-state format.

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Gas Cards

All gas cards pictured here are part of the National Currency Collection of the Bank of Canada.

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.

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.

The authors investigate the behaviour of core inflation in Canada to analyze three key issues: (i) homogeneity in the response of various price indexes to demand or real exchange rate shocks relative to the response of aggregate core inflation; (ii) whether using disaggregate data helps to improve the forecast of core inflation; and (iii) whether using monthly data helps to improve quarterly forecasts.

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.

China's integration into the world economy has benefited its people by reducing poverty and raising living standards, and it has benefited the industrialized world by producing manufactured goods at lower cost. It has also raised geopolitical concerns as China's power grows, economic concerns as the manufacturing base in many industrialized countries erodes, and polemics as proposals of protectionist measures to counter China's export growth are put forward.

Financial and monetary variables have long been known to contain useful leading information regarding economic activity. In this paper, the authors wish to determine whether the forecasting performance of such variables can be improved using neural network models. The main findings are that, at the 1-quarter forecasting horizon, neural networks yield no significant forecast improvements. […]

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.