Search

The break-even inflation rate (BEIR) is calculated by comparing the yields on conventional and Real Return Bonds. Defined as the average rate of inflation that equates the expected returns on these two bonds, the BEIR has the potential to contain useful information about long-run inflation expectations. Yet the BEIR has been higher, on average, and more variable than survey measures of inflation expectations, which may be explained by the effects of premiums and distortions embedded in the BEIR. Because of the difficulty in accounting for these distortions, the BEIR should not be given a large weight as a measure of long-run inflation expectations at this time. However, as the Real Return Bond market continues to develop, the BEIR should become a more useful indicator of inflation expectations. At present, it demonstrates no clear advantage over survey measures and even past inflation rates in forecasting near-term inflation.

Production efficiency and financial stability do not necessarily go hand in hand. With heterogeneity in banks’ abilities to screen borrowers, the market for loans becomes segmented and a self-competition mechanism arises. When heterogeneity increases, the intensive and extensive margins have opposite effects.

Bank of Canada Deputy Governor Sharon Kozicki discusses how differences among households affect economic outcomes, how shocks can have important uneven effects across households, and why these things matter for monetary policy.

Unregulated capital flows are likely excessive during a stagflation episode, owing to a macroeconomic externality operating through the economy’s supply side. Inflows raise domestic wages and cause unwelcome upward pressure on firm costs, yet market forces likely generate such inflows. Optimal capital flow management instead requires net outflows.

Similar to those of other forecasters, the Bank of Canada’s forecasts of global GDP growth have shown persistent negative errors over the past five years. This is in contrast to the pre-crisis period, when errors were consistently positive as global GDP surprised to the upside. All major regions have contributed to the forecast errors observed since 2011, although the United States has been the most persistent source of notable errors.

Senior Deputy Governor Carolyn A. Wilkins explains how uncertainty is factored into monetary policy decisions.

Central banks continuously strive to improve how they communicate to financial markets and the public in order to increase transparency. For this reason, many central banks have begun to include guidance on the policy rate in the form of forward-looking statements in their communications. This article examines the debate over the usefulness of providing such statements from both theoretical and empirical standpoints. The evidence presented here suggests that the use of forward-looking statements in Bank of Canada communications has made the Bank more predictable, but not necessarily more transparent.

Hurricanes disrupt oil production in the Gulf of Mexico because producers shut in oil platforms to safeguard lives and prevent damage. We examine the effects of these temporary oil supply shocks on real economic activity in the United States.

An important channel in the transmission of monetary policy is the relationship between the short-term policy rate and long-term interest rates. Using a new term-structure model, the authors show that the variation in long-term interest rates over time consists of two components: one representing investor expectations of future policy rates, and another reflecting a term-structure risk premium that compensates investors for holding a risky asset. The time variation in the term-structure risk premium is countercyclical and largely determined by global macroeconomic conditions. As a result, long-term rates are pushed up during recessions and down during times of expansion. This is an important phenomenon that central banks need to take into account when using short-term rates as a policy tool.

We explore what drives transaction fees in the Bitcoin system and consider whether Bitcoin can remain tamper proof in the long run.