Market structure and pricing

• The Monetary Origins of Asymmetric Information in International Equity Markets

  Staff Working Paper 2004-47 Gregory Bauer, Clara Vega

  Existing studies using low-frequency data show that macroeconomic shocks contribute little to international stock market covariation.

  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

• Modelling the Evolution of Credit Spreads in the United States

  Staff Working Paper 2004-45 Stuart Turnbull, Jun Yang

  The authors use Jarrow and Turnbull's (1995) reduced-form methodology to model the evolution of the term structure of interest rates in the United States for different credit classes and different industries.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): G, G1, G12, G13
• 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