November 23, 2004 Real Return Bonds: Monetary Policy Credibility and Short-Term Inflation Forecasting Bank of Canada Review - Autumn 2004 Christopher Reid, Frédéric Dion, Ian Christensen 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. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation and prices, Interest rates, Market structure and pricing
Real Return Bonds, Inflation Expectations, and the Break-Even Inflation Rate Staff Working Paper 2004-43 Ian Christensen, Christopher Reid, Frédéric Dion According to the Fisher hypothesis, the gap between Canadian nominal and Real Return Bond yields (or break-even inflation rate) should be a good measure of inflation expectations. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Interest rates, Market structure and pricing JEL Code(s): E, E3, E31, E4, E43
International Equity Flows and Returns: A Quantitative Equilibrium Approach Staff Working Paper 2004-42 Rui Albuquerque, Martin Schneider, Gregory Bauer The authors model trading by foreign and domestic investors in developed-country equity markets. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, International topics, Market structure and pricing JEL Code(s): F, F3, F30, G, G1, G12, G14, G15
August 24, 2004 The Efficiency of Canadian Capital Markets: Some Bank of Canada Research Bank of Canada Review - Summer 2004 Scott Hendry, Michael R. King Capital markets and their related financial instruments make an important contribution to the welfare of Canadians. The Bank of Canada is interested in the efficient functioning of capital markets through each of its responsibilities for monetary policy, the financial system, and funds management. Hendry and King highlight the key findings of Bank research published over the past year that addresses capital market efficiency and summarize lessons that have been learned. The research conducted thus far suggests that Canadian capital markets are efficient for a capital market of Canada's size but are less diverse than the U.S. capital markets, indicating that there is room for improvement in certain areas. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial markets, Financial services, Interest rates, Market structure and pricing
Competition in Banking: A Review of the Literature Staff Working Paper 2004-24 Carol Ann Northcott The author reviews the theoretical and empirical literature to examine the traditional perception that the following trade-off exists between economic efficiency and stability in the banking system: a competitive banking system is more efficient and therefore important to growth, but market power is necessary for stability in the banking system. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services, Market structure and pricing JEL Code(s): G, G2, G21, G28, L, L1, L11, L12, L13, L16
The Effects of Economic News on Bond Market Liquidity Staff Working Paper 2004-16 Chris D'Souza, Charles Gaa The authors contrast the impact of two sources of information flow on the volatility of prices, trading activity, and liquidity in the brokered interdealer market for Government of Canada bonds. Content Type(s): Staff research, Staff working papers Topic(s): Debt management, Financial markets, Market structure and pricing JEL Code(s): G, G1, G14
The Economic Theory of Retail Pricing: A Survey Staff Working Paper 2004-8 Oana Secrieru The types of contracts that arise in a typical vertical manufacturer–retailer relationship are more sophisticated than usually assumed in standard macroeconomic models. Content Type(s): Staff research, Staff working papers Topic(s): Market structure and pricing JEL Code(s): D, D4, D40, L, L2, L22, L4, L42
An Empirical Analysis of Liquidity and Order Flow in the Brokered Interdealer Market for Government of Canada Bonds Staff Working Paper 2003-28 Chris D'Souza, Charles Gaa, Jing Yang The authors empirically measure Canadian bond market liquidity using a number of indicators proposed in the literature and detail, for the first time, price and trade dynamics in the Government of Canada secondary bond market. They find, consistent with Inoue (1999), that the Canadian brokered interdealer fixed-income market is relatively liquid for its size. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): G, G1, G10, G14
Oil-Price Shocks and Retail Energy Prices in Canada Staff Working Paper 2002-38 Marwan Chacra The effects of global energy-price shocks on retail energy prices in Canada are examined. More specifically, the author looks at the response of the consumer price indexes for gasoline, heating oil, natural gas, and electricity in Canada to movements in world crude oil prices. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Inflation and prices, Market structure and pricing JEL Code(s): C, C2, C22, C5, C51, C53, Q, Q4, Q40
How Do Canadian Banks That Deal in Foreign Exchange Hedge Their Exposure to Risk? Staff Working Paper 2002-34 Chris D'Souza This paper examines the daily hedging and risk-management practices of financial intermediaries in the Canadian foreign exchange (FX) market. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Market structure and pricing JEL Code(s): F, F3, F31, G, G1, G14, G2, G21