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The 2002 Bank of Canada Conference focused on price adjustment, a critically important issue for monetary policy. Given the acceptance throughout the 1990s and 2000s of the existence of price stickiness in goods or labour markets, or both, and of the important role that monetary policy can play in an economy, the time was right for a conference that would focus on current developments in this area of research, particularly within a Canadian context. Conference papers covering both theoretical and empirical studies explored such themes as sources of the persistence of inflation, forward-looking models of inflation, models of inflation in open economies, the macroeconomic effects of technology shocks, and models of the interaction between wages, prices, and real economic outcomes.

How do import tariffs affect retail prices? We combine daily product-level posted prices from seven major Canadian retailers with product-level tariff exposure to estimate tariff effects. Prices of tariffed goods rose gradually, peaking at 6% after three months, implying pass-through of roughly one quarter of the 25% tariff.

We explore properties of asymmetric generalized autoregressive conditional heteroscedasticity (GARCH) models in the threshold GARCH (GTARCH) family and propose a more general Spline-GTARCH model, which captures high-frequency return volatility, low-frequency macroeconomic volatility as well as an asymmetric response to past negative news in both autoregressive conditional heteroscedasticity (ARCH) and GARCH terms.

This report provides a detailed technical description of the updated MacroFinancial Risk Assessment Framework (MFRAF), which replaces the version described in Gauthier, Souissi and Liu (2014) as the Bank of Canada’s stress-testing model for banks with a focus on domestic systemically important banks (D-SIBs).

We assess the response of Government of Canada bond yields to the Bank of Canada’s initial announcement of the Government Bond Purchase Program (GBPP) as well as to the Bank’s later GBPP purchase operations.

In this paper, we study the impact of Canada’s adoption of protectionist trade policy in 1879 on Canadian welfare. Under the National Policy the Canadian average weighted tariff increased from 14% to 21%. The conventional view is that this was a distortionary policy that negatively affected Canadian welfare.

I develop a population-based Markov chain Monte Carlo algorithm known as parallel tempering to estimate dynamic stochastic general equilibrium models. Parallel tempering approximates the posterior distribution of interest using a family of Markov chains with tempered posteriors.

Our layered machine learning framework can enhance real-time transaction monitoring in high-value payment systems, which are a central piece of a country’s financial infrastructure. When tested on data from Canadian payment systems, it demonstrated potential for accurately identifying anomalous transactions. This framework could help improve cyber and operational resilience of payment systems.

While the Bank of Canada's inflation-control target is specified in terms of the rate of increase in the total consumer price index, the Bank uses a measure of trend or "core" inflation as a short-term guide for its monetary policy actions. When the inflation targets were renewed in May 2001, the Bank announced that it was adopting a new measure of core inflation. This measure excludes the eight most volatile components of the CPI and adjusts the remaining components for the effect of changes in indirect taxes. In this article, the author discusses the definition of the new measure of core inflation and describes some of its advantages relative to the previous measure. He notes that the new measure has a firmer statistical basis, has a better correspondence with economic theory, and does a better job of predicting future changes in overall inflation. While the new measure has these advantages, the Bank will continue to monitor a broad range of indicators when assessing the likely future path for inflation.

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.