E3 - Prices, Business Fluctuations, and Cycles

• Introducing the Bank of Canada's Projection Model for the Global Economy

  Technical Report No. 99 Jeannine Bailliu, Patrick Blagrave, James Rossiter

  To complement its existing set of tools to analyze and forecast developments in the global economy, the Bank of Canada recently developed a version of the Global Projection Model (GPM) jointly with staff at the International Monetary Fund.

  Content Type(s): Staff research, Technical reports Research Topic(s): Business fluctuations and cycles, Economic models, International topics JEL Code(s): C, C6, C68, E, E2, E27, E3, E37, F, F0, F01

• Price Level Targeting: What Is the Right Price?

  Staff Working Paper 2010-8 Malik Shukayev, Alexander Ueberfeldt

  Various papers have suggested that Price-Level targeting is a welfare improving policy relative to Inflation targeting. From a practical standpoint, this raises an important yet unanswered question: What is the optimal price index to target?

  Content Type(s): Staff research, Staff working papers Research Topic(s): Monetary policy framework JEL Code(s): E, E3, E32, E5, E52

• Labour Reallocation, Relative Prices and Productivity

  Staff Working Paper 2010-2 Shutao Cao, Danny Leung

  This paper documents the rate at which labour flows between industries and between firms within industries using the most recent data available. It examines the determinants of these flows and their relationship with the productivity growth.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Inflation and prices, Labour markets, Productivity JEL Code(s): D, D2, D23, E, E3, E32, J, J6

• Real and Nominal Frictions within the Firm: How Lumpy Investment Matters for Price Adjustment

  Staff Working Paper 2009-36 Michael K. Johnston

  Real rigidities are an important feature of modern sticky price models and are policy-relevant because of their welfare consequences, but cannot be structurally identified from time series. I evaluate the plausibility of capital specificity as a source of real rigidities using a two-dimensional generalized (s,S) model calibrated to micro evidence.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Monetary policy transmission JEL Code(s): E, E1, E12, E2, E22, E3, E31

• Estimating DSGE-Model-Consistent Trends for Use in Forecasting

  Staff Working Paper 2009-35 Jean-Philippe Cayen, Marc-André Gosselin, Sharon Kozicki

  The workhorse DSGE model used for monetary policy evaluation is designed to capture business cycle fluctuations in an optimization-based format. It is commonplace to log-linearize models and express them with variables in deviation-from-steady-state format.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C3, C32, E, E3, E5, E52

• Risk Premium Shocks and the Zero Bound on Nominal Interest Rates

  Staff Working Paper 2009-27 Robert Amano, Malik Shukayev

  There appears to be a disconnect between the importance of the zero bound on nominal interest rates in the real-world and predictions from quantitative DSGE models. Recent economic events have reinforced the relevance of the zero bound for monetary policy whereas quantitative models suggest that the zero bound does not constrain (optimal) monetary policy.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Monetary policy framework JEL Code(s): E, E3, E32, E5, E52

• Consumption, Housing Collateral, and the Canadian Business Cycle

  Staff Working Paper 2009-26 Ian Christensen, Paul Corrigan, Caterina Mendicino, Shin-Ichi Nishiyama

  Using Bayesian methods, we estimate a small open economy model in which consumers face limits to credit determined by the value of their housing stock. The purpose of this paper is to quantify the role of collateralized household debt in the Canadian business cycle.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Monetary policy transmission JEL Code(s): E, E2, E21, E3, E32, E4, E44, E5, E52, R, R2, R21

• Resurrecting the Role of Real Money Balance Effects

  Staff Working Paper 2009-24 José Dorich

  I present a structural econometric analysis supporting the hypothesis that money is still relevant for shaping inflation and output dynamics in the United States. In particular, I find that real money balance effects are quantitatively important, although smaller than they used to be in the early postwar period.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Monetary aggregates, Monetary policy transmission JEL Code(s): E, E3, E31, E32, E5, E52

• A Financial Conditions Index for the United States

  Staff Discussion Paper 2009-11 Kimberly Beaton, René Lalonde, Corinne Luu

  The financial crisis of 2007–09 has highlighted the importance of developments in financial conditions for real economic activity. The authors estimate the effect of current and past shocks to financial variables on U.S. GDP growth by constructing two growthbased financial conditions indexes (FCIs) that measure the contribution to quarterly (annualized) GDP growth from financial conditions.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Business fluctuations and cycles, Monetary and financial indicators, Monetary conditions index, Recent economic and financial developments JEL Code(s): E, E3, E32, E4, E44, E47, E5, E51

• Structural Inflation Models with Real Wage Rigidities: The Case of Canada

  Staff Working Paper 2009-21 Jean-Marie Dufour, Lynda Khalaf, Maral Kichian

  Real wage rigidities have recently been proposed as a way of building intrinsic persistence in inflation within the context of New Keynesian Phillips Curves. Using two recent illustrative structural models, we evaluate empirically the importance of real wage rigidities in the data and the extent to which such models provide useful information regarding price stickiness.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Inflation and prices, Labour markets JEL Code(s): C, C1, C13, C5, C52, E, E3, E31