In an era when the primary policy instrument is the level of the short-term interest rate, a comparison of that rate with some equilibrium rate can be a useful guide for policy and a convenient method to measure the stance of monetary policy.
The authors examine evidence of long- and short-run co-movement in Canadian sectoral output data. Their framework builds on a vector-error-correction representation that allows them to test for and compute full-information maximum-likelihood estimates of models with codependent cycle restrictions.
The authors examine the link between consumption and disaggregate wealth in Canada. They use a vector-error-correction model in which permanent and transitory shocks are identified using the restrictions implied by cointegration proposed by King, Plosser, Stock, and Watson (1991) and Gonzalo and Granger (1995).
Traditional structural models cannot distinguish whether changes in activity are a function of altered expectations today or lagged responses to past plans. Polynomial-adjustment-cost (PAC) models remove this ambiguity by explicitly separating observed dynamic behaviour into movements that have been induced by changes in expectations, and responses to expectations, that have been delayed because of adjustment costs.
The authors develop a new methodology to investigate how crises cause the relationship between financial variables to change. Two possible sources of increased co-movement between markets during high-variance episodes are considered: larger common shocks operating through standard market linkages, and a structural change in the propagation of shocks between markets, called "shift contagion."
The author presents empirical evidence that he has obtained from an analysis of the response of different economic variables, including the real wage rate, to a technology shock.
In this paper, we study the impact of supply shocks on the Canadian real exchange rate. We specify a structural vector-error-correction model that links the real exchange rate to different fundamentals.