Downward Nominal Wage Rigidity in Canada: Evidence Against a “Greasing Effect” Staff working paper 2017-31 Joel Wagner The existence of downward nominal wage rigidity (DNWR) has often been used to justify a positive inflation target. It is traditionally assumed that positive inflation could “grease the wheels” of the labour market by putting downward pressure on real wages, easing labour market adjustments during a recession. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E24, E5, E52 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Real economy and forecasting
Harnessing the benefit of state-contingent forward guidance Staff analytical note 2022-13 Vivian Chu, Yang Zhang A low level of the neutral rate of interest increases the likelihood that a central bank’s policy rate will reach its effective lower bound (ELB) in future economic downturns. In a low neutral rate environment, using an extended monetary policy toolkit including forward guidance helps address the ELB challenge. Using the Bank’s Terms-of-Trade Economic Model, we assess the benefits and limitations of a state-contingent forward guidance implemented within a flexible inflation targeting framework. Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E2, E27, E3, E37, E4, E5, E52, E58 Research Theme(s): Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission, Monetary policy tools and implementation
Dating Systemic Financial Stress Episodes in the EU Countries Staff working paper 2016-11 Benjamin Klaus, Tuomas Peltonen, Thibaut Duprey This paper introduces a new methodology to date systemic financial stress events in a transparent, objective and reproducible way. The financial cycle is captured by a monthly country-specific financial stress index. Content Type(s): Staff research, Staff working papers JEL Code(s): C, C5, C54, G, G0, G01, G1, G15 Research Theme(s): Financial system, Financial stability and systemic risk, Models and tools, Econometric, statistical and computational methods
October 20, 2006 MUSE: The Bank of Canada's New Projection Model of the U.S. Economy Bank of Canada Review - Autumn 2006 Marc-André Gosselin, René Lalonde, Nicolas Parent Staff projections provided for the Bank of Canada's monetary policy decision process take into account the integration of Canada's very open economy within the global economy, as well as its close real and financial linkages with the United States. To provide inputs for this projection, the Bank has developed several models, including MUSE, NEUQ (the New European Quarterly Model), and BoC-GEM (Bank of Canada Global Economy Model), to analyze and forecast economic developments in the rest of the world. The authors focus on MUSE, the model currently used to describe interaction among the principal U.S. economic variables, including gross domestic product, inflation, interest rates, and the exchange rate. Brief descriptions are also provided of NEUQ and BoC-GEM. Content Type(s): Publications, Bank of Canada Review articles
November 15, 2001 Conference Summary: Revisiting the Case for Flexible Exchange Rates Bank of Canada Review - Autumn 2001 Lawrence L. Schembri This article summarizes the proceedings of an international research conference hosted by the Bank of Canada in November 2000. The conference marked the fiftieth anniversary of Canada's adoption of a flexible exchange rate, and its title recognizes the seminal contribution of Professor Milton Friedman's article "The Case for Flexible Exchange Rates." His keynote address to the conference is also summarized in the article. The conference papers re-examine many of the arguments raised by Friedman using recent developments in economic theory and econometric techniques. They investigate the experience of a wide range of industrialized and emerging-market economies. The main findings are that a strong case can be made for flexible exchange rates in economies that are large commodity exporters and that have credible low-inflation monetary policies and relatively well-developed financial systems. Content Type(s): Publications, Bank of Canada Review articles
The Role of International Financial Integration in Monetary Policy Transmission Staff working paper 2024-3 Jing Cynthia Wu, Yinxi Xie, Ji Zhang We propose an open-economy New Keynesian model with financial integration that allows financial intermediaries to hold foreign long-term bonds. We study the implications of financial integration on monetary policy transmission. Among various aspects of financial integration, the bond duration plays a major role. These results hold for conventional and unconventional monetary policies. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E4, E44, E5, E52, F, F3, F36, F4, F42 Research Theme(s): Financial system, Financial institutions and intermediation, Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission, Structural challenges, International trade, finance and competitiveness
Challenges in Implementing Worst-Case Analysis Staff working paper 2018-47 Jon Danielsson, Lerby Ergun, Casper G. de Vries Worst-case analysis is used among financial regulators in the wake of the recent financial crisis to gauge the tail risk. We provide insight into worst-case analysis and provide guidance on how to estimate it. We derive the bias for the non-parametric heavy-tailed order statistics and contrast it with the semi-parametric extreme value theory (EVT) approach. Content Type(s): Staff research, Staff working papers JEL Code(s): C, C0, C01, C1, C14, C5, C58 Research Theme(s): Financial system, Financial stability and systemic risk, Models and tools, Econometric, statistical and computational methods
The Side Effects of Safe Asset Creation Staff working paper 2021-34 Sushant Acharya, Keshav Dogra The secular decline in real interest rates has created a challenge for monetary policy, now confronting the zero lower bound more often. An increase in the supply of safe assets reduces downward pressure on the natural interest rate. This allows monetary policy to reach price stability and full employment, but not without cost—permanently lower investment. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E3, E4, E5, G, G1, H, H6 Research Theme(s): Financial system, Financial stability and systemic risk, Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Monetary policy tools and implementation
November 17, 2011 Bank of Canada Review - Autumn 2011 This issue features four articles that present research and analysis by Bank staff. The first focuses on reforming the international monetary system; the second on the role of collateral and haircut policy in central bank lending; and the third on the extraction of information from the Business Outlook Survey using principal-component analysis. The fourth reviews studies that model the counterfeiting of bank notes. Content Type(s): Publications, Bank of Canada Review
Uncovering Subjective Models from Survey Expectations Staff working paper 2025-31 Chenyu Hou, Tao Wang This paper shows that survey expectations can be used to uncover how households subjectively think about inflation and unemployment dynamics jointly. The commonly documented "stagflation view", namely the households' tendency to associate inflation with a worse labor market, implies amplified impacts of supply shocks and dampened ones of demand shocks. Content Type(s): Staff research, Staff working papers JEL Code(s): D, D8, D84, E, E2, E21, E3, E30, E32, E7, E71 Research Theme(s): Models and tools, Econometric, statistical and computational methods, Economic models, Monetary policy, Inflation dynamics and pressures, Real economy and forecasting