Forecasting GDP Growth Using Artificial Neural Networks Staff Working Paper 1999-3 Greg Tkacz, Sarah Hu Financial and monetary variables have long been known to contain useful leading information regarding economic activity. In this paper, the authors wish to determine whether the forecasting performance of such variables can be improved using neural network models. The main findings are that, at the 1-quarter forecasting horizon, neural networks yield no significant forecast improvements. […] Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Monetary and financial indicators JEL Code(s): C, C4, C45, E, E3, E37, E4, E44
Forecasting Inflation with the M1-VECM: Part Two Staff Working Paper 1998-6 Walter Engert, Scott Hendry A central bank's main concern is the general direction of future inflation, and not transitory fluctuations of the inflation rate. As a result, this paper is concerned with forecasting a simple measure of the trend of inflation, the eight-quarter CPI-inflation rate. The primary objective is to improve the M1-based vector-error-correction model (VECM) developed by Hendry […] Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Inflation and prices, Monetary aggregates JEL Code(s): C, C3, C5, E, E3, E4, E5
Predicting Canadian Recessions Using Financial Variables: A Probit Approach Staff Working Paper 1998-5 Joseph Atta-Mensah, Greg Tkacz This paper examines the ability of a number of financial variables to predict Canadian recessions. Regarding methodology, we follow closely the technique employed by Estrella and Mishkin (1998), who use a probit model to predict U.S. recessions up to eight quarters in advance. Our main finding is that the spread between the yield on Canadian […] Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Interest rates JEL Code(s): E, E3, E32, E4, E43
Canadian Short-Term Interest Rates and the BAX Futures Market: Analysis of the Impact of Volatility on Hedging Activity and the Correlation of Returns between Markets Staff Working Paper 1997-18 David Watt This paper analyses how Canadian financial firms manage short-term interest rate risk through the use of BAX futures contracts. The results show that the most effective hedging strategy is, on average, a static strategy based on linear regression that assumes constant variances, even though dynamic models allowing for time-varying variances are found to have superior explanatory power. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Interest rates JEL Code(s): E, E4, E43
The Structure of Interest Rates in Canada: Information Content about Medium-Term Inflation Staff Working Paper 1997-10 Jim Day, Ron Lange This paper examines the relationship between the term structure of interest rates and future changes in inflation for Canada using a newly constructed par-value yield series. The main conclusion of the empirical work is that the slope of the nominal term structure from 1- to 5-year maturities is a reasonably good predictor of future changes in inflation over these horizons. Content Type(s): Staff research, Staff working papers Topic(s): Interest rates, Monetary and financial indicators JEL Code(s): E, E4, E43
The Liquidity Trap: Evidence from Japan Staff Working Paper 1997-4 Isabelle Weberpals Japanese economic activity has been stagnant since the collapse of the speculative asset-price bubble in 1990, despite highly expansionary monetary policy which has brought interest rates down to record low levels. Although several reasons have been put forward to explain the sustained weakness of the Japanese economy, none is more intriguing from the viewpoint of a central bank than the possibility that monetary policy had been largely ineffective because the Japanese economy entered a Keynesian "liquidity trap." Content Type(s): Staff research, Staff working papers Topic(s): International topics, Recent economic and financial developments JEL Code(s): E, E4, E42, E5, E51, E52
L'endettement du Canada et ses effets sur les taux d'intérêt réels de long terme Staff Working Paper 1996-14 Jean-François Fillion This paper examines the effects that Canada's indebtedness has on Canadian real long-term interest rates, using the vector error-correction model (VECM). Our results show that there is a strongly cointegrated relationship between real interest rates in Canada, U.S. real interest rates, and Canadian public and external debt ratios. Content Type(s): Staff research, Staff working papers Topic(s): Fiscal policy, Interest rates JEL Code(s): E, E4, E43, F, F3, F30, H, H6, H60
Speculative Behaviour, Regime-Switching and Stock Market Crashes Staff Working Paper 1996-13 Simon van Norden, Huntley Schaller This paper uses regime-switching econometrics to study stock market crashes and to explore the ability of two very different economic explanations to account for historical crashes. The first explanation is based on historical accounts of "manias and panics." Content Type(s): Staff research, Staff working papers Topic(s): Financial markets JEL Code(s): C, C4, C40, E, E4, E44, G, G1, G12
Interpreting Money-Supply and Interest-Rate Shocks as Monetary-Policy Shocks Staff Working Paper 1996-8 Marcel Kasumovich In this paper two shocks are analysed using Canadian data: a money-supply shock ("M-shock") and an interest-rate shock ("R-shock"). Money-supply shocks are derived using long-run restrictions based on long-run propositions of monetary theory. Thus, an M-shock is represented by an orthogonalized innovation in the trend shared by money and prices. Content Type(s): Staff research, Staff working papers Topic(s): Monetary and financial indicators, Monetary policy transmission JEL Code(s): E, E4, E43, E5, E51
Decomposing U.S. Nominal Interest Rates into Expected Inflation and Ex Ante Real Interest Rates Using Structural VAR Methodology Staff Working Paper 1996-2 Pierre St-Amant In this paper, the author uses structural vector autoregression methodology to decompose U.S. nominal interest rates into an expected inflation component and an ex ante real interest rate component. He identifies inflation expectations and ex ante real interest rate shocks by assuming that nominal interest rates and inflation expectations move one-for-one in the long-run—they are cointegrated (1,1)—and that the real interest rate is stationary. Content Type(s): Staff research, Staff working papers Topic(s): Interest rates, International topics JEL Code(s): E, E3, E31, E4, E43