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This paper empirically assesses the effectiveness of the Bank of Canada's term Purchase and Resale Agreement (PRA) facility in reducing short-term bank funding pressures, as measured by the CDOR-OIS spread.

Pricing-to-market (PTM) theory suggests that monopolistic firms which export adjust their destination-specific markups in reaction to exchange rate shocks. These adjustments limit changes in the price of their exports.

We examine whether there is a significant relationship between government and private consumption for Canada. We derive estimating equations between the two types of consumption under both cointegration and no-cointegration assumptions.

Several recent papers have presented evidence from foreign exchange and other markets suggesting that the log of excess returns can be characterized as first-order integrated processes (I(1)). This contrasts sharply with the "conventional" wisdom that log prices are integrated of order one I(1) and that log returns should therefore be integrated of order zero I(0), and even more sharply with the view that past returns have no ability to predict future returns (weak market efficiency).

This paper considers a real business cycle model with labor search frictions where two types of incentive pay are explicitly introduced following the insights from the micro literature on performance pay (e.g. Lazear, 1986).

This paper presents a dynamic general equilibrium model where asymmetric information about asset quality leads to asset illiquidity. Banking arises endogenously in this environment as banks can pool illiquid assets to average out their idiosyncratic qualities and issue liquid liabilities backed by pooled assets whose total quality is public information.

The recent strengh of the U.S. economy and historically low rates of inflation have sparked considerable debate among economists and Federal Reserve officials. In order to better explain the recent behaviour of inflation, some observers have raised the concept of a non-accelerating inflation capacity utilization rate (NAICU). In this study, the author presents a new […]

We introduce the Homoscedastic Gamma [HG] model where the distribution of returns is characterized by its mean, variance and an independent skewness parameter under both measures. The model predicts that the spread between historical and risk-neutral volatilities is a function of the risk premium and of skewness.

Carbon dioxide emissions have been commonly modelled as rising and falling with total output. Yet many factors, such as energy-efficiency improvements and shifts to cleaner energy, can break this relationship. We evaluate these factors using US data and find that changes in energy efficiency of consumption goods explain a significant proportion of emissions fluctuations. This finding also implies that models that omit energy efficiency likely overestimate the trade-off between environmental protection and economic performance.

To complement its existing set of tools to analyze and forecast developments in the global economy, the Bank of Canada recently developed a version of the Global Projection Model (GPM) jointly with staff at the International Monetary Fund.