August 10, 1996 Inflation expectations and Real Return Bonds Bank of Canada Review - Summer 1996 Agathe Côté, Jocelyn Jacob, John Nelmes, Miles Whittingham The existence of a market for Real Return Bonds in Canada provides a direct tool with which to measure market expectations of inflation by comparing the yields on these bonds with those on conventional Government of Canada long-term bonds. However, there are other factors besides inflation expectations that may affect the yield differential. After reviewing these factors, the authors note that they can lead to a potentially large bias in the level of inflation expectations. The changes in the differential over time may, nonetheless, be a good indicator of movements in long-run inflation expectations. Based on this measure, expectations of long-run inflation have declined since late 1994. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Interest rates
Avoiding the Pitfalls: Can Regime-Switching Tests Detect Bubbles? Staff Working Paper 1996-11 Simon van Norden, Robert Vigfusson Work on testing for bubbles has caused much debate, much of which has focussed on methodology. Monte Carlo simulations reported in Evans (1991) showed that standard tests for unit roots and cointegration frequently reject the presence of bubbles even when such bubbles are present by construction. Evans referred to this problem as the pitfall of testing for bubbles. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods JEL Code(s): C, C2, C22, C5, C52
Unit-Root Tests and Excess Returns Staff Working Paper 1996-10 Marie-Josée Godbout, Simon van Norden 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). Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods JEL Code(s): C, C1, C12, F, F3, F31
Does Inflation Uncertainty Vary with the Level of Inflation? Staff Working Paper 1996-9 Allan Crawford, Marcel Kasumovich The purpose of this study is to test the hypothesis that inflation uncertainty increases at higher levels of inflation. Our analysis is based on the generalized autoregressive conditional heteroscedasticity (GARCH) class of models, which allow the conditional variance of the error term to be time-varying. Since this variance is a proxy for inflation uncertainty, a positive relationship between the conditional variance and inflation would be interpreted as evidence that inflation uncertainty increases with the level of inflation. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Monetary policy and uncertainty JEL Code(s): C, C5, C52, E, E3, E31
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
Excess Volatility and Speculative Bubbles in the Canadian Dollar: Real or Imagined? Technical Report No. 76 John Murray, Simon van Norden, Robert Vigfusson Greater intervention by the public sector is often proposed as a solution to the increased speculation and excessive price volatility thought to characterize today's competitive world financial system. Content Type(s): Staff research, Technical reports Topic(s): Exchange rates JEL Code(s): C, C4, C40, F, F3, F31
June 27, 1996 Some current economic issues in Canada Remarks Gordon Thiessen London Chamber of Commerce London, Ontario Every year, the Bank of Canada's Board of Directors has one of its meetings outside Ottawa, in a different part of the country. I am delighted that this year's meeting has brought us to London today, giving me the opportunity to speak to you about recent developments in the Canadian economy. Content Type(s): Press, Speeches and appearances, Remarks
May 20, 1996 Monetary Policy Report – May 1996 This Report presents the Bank of Canada’s assessment of the trend of inflation in Canada and explains the monetary policy actions deemed necessary to keep inflation within the Bank’s inflation-control target range. Content Type(s): Publications, Monetary Policy Report
May 17, 1996 The Transmission of Monetary Policy Gordon Thiessen, Bruce Montador, Kevin Clinton, Kevin Fettig, Donna Howard, Charles Freedman, Pierre Duguay, Stephen S. Poloz, Tim Noël Text of major 1995 lecture by Bank Governor Gordon Thiessen, plus articles from Bank of Canada Review and other sources Content Type(s): Publications, Books and monographs Topic(s): Monetary policy transmission JEL Code(s): E, E5
May 11, 1996 Recent developments in monetary aggregates and their implications Bank of Canada Review - Spring 1996 Louis-Robert Lafleur, Walter Engert In 1995, the broad aggregate M2+ grew at an annual rate of 4.5 per cent—almost twice the rate recorded in 1994—as competition from mutual funds drew less money from personal savings deposits. An adjusted M2+ aggregate, which internalizes the effect of close substitutes such as CSBs and certain mutual funds, grew by only 3.4 per cent. Gross M1 grew by 8.2 per cent during the year, reflecting an increased demand for transactions balances as market interest rates declined and as banks offered more attractive rates of interest on corporate current account balances. The robust growth of gross M1 in the second half of 1995 suggests a moderate expansion of economic activity in the first half of 1996, while moderate growth in the broad aggregates indicates a rate of monetary expansion consistent with continued low inflation. In this annual review of the monetary aggregates, the authors also introduce a new model, based on calculated deviations of M1 from its long-run demand, which suggests that inflation should remain just below the midpoint of the inflation-control target range over the next couple of years. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Monetary aggregates, Recent economic and financial developments