Staff working papers
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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
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. -
Canadian Policy Analysis Model: CPAM
This paper documents the structure and properties of the Canadian Policy Analysis Model (CPAM). CPAM is designed to provide a reasonably complete representation of the Canadian macro economy. -
The Effects of Budget Rules on Fiscal Performance and Macroeconomic Stabilization
Budget rules can be defined as legislated or constitutional constraints on government deficits, taxes, expenditures, or debt. This paper reviews the budget rules recently legislated in six of Canada's provinces and both of its territories, as well as budget rules in other OECD countries. -
Menu Costs, Relative Prices, and Inflation: Evidence for Canada
The menu-cost models of price adjustment developed by Ball and Mankiw (1994;1995) predict that short-run movements in inflation should be positively related to the skewness and the variance of the distribution of disaggregated relative-price shocks in each period. We test these predictions on Canadian data using the distribution of changes in disaggregated producer prices to measure the skewness and standard deviation of relative-price shocks. -
What Does Downward Nominal-Wage Rigidity Imply for Monetary Policy?
A recent paper has suggested there might be a trade-off between inflation and unemployment at low inflation rates and this has led some economists to recommend that Canada increase its inflation rate. -
A Micro Approach to the Issue of Hysteresis in Unemployment: Evidence from the 19881990 Labour Market Activity Survey
This paper uses a rich set of microeconomic labour market data—the 198890 Labour Market Activity Survey published by Statistics Canada—to test whether there is negative duration dependence in unemployment spells. It updates and extends similar work carried out by Jones (1995) who used the 198687 Labour Market Activity Survey. -
A Band-Aid Solution to Inflation Targeting
This paper reviews selectively the literature on exchange rate target zones and corresponding methodologies and examines whether they can be used to analyse the inflation-control problem. -
The Structure of Interest Rates in Canada: Information Content about Medium-Term Inflation
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. -
Mesures du taux d'inflation tendanciel
In this paper, the author calculates new measures of the trend inflation rate using changes in the components of total CPI; the hypothesis is that extreme fluctuations in certain prices reflect temporary supply shocks rather than any basic price trend.