This note summarizes the Bank of Canada’s 2016 annual reassessment of potential output growth, which is projected to be 1.5 per cent over 2016–18 and 1.6 per cent in 2019–20. This projection is weaker than the one presented in the April 2015 Monetary Policy Report.
Staff Analytical Notes
Staff Discussion Papers
Recently released data show downward trends for both the firm entry rate and the rate of new entrepreneurship since the early 1980s in Canada. This paper documents these trends and discusses potential explanations.
Measuring Potential Output at the Bank of Canada: The Extended Multivariate Filter and the Integrated FrameworkEstimating potential output and the output gap - the difference between actual output and its potential - is important for the proper conduct of monetary policy. However, the measurement and interpretation of potential output, and hence the output gap, is fraught with uncertainty, since it is unobservable.
Staff Working Papers
In this paper, we assess several methods that have been used to measure the Canadian trend unemployment rate (TUR). We also consider improvements and extensions to some existing methods.
We ask whether a weaker contribution of information and communication technologies (ICT) to productivity growth could account for the productivity slowdown observed in Canada since the early 2000s. To answer this question, we consider several methods capturing channels through which ICT could affect aggregate productivity growth.
There are indications that business dynamism has declined in advanced economies. In particular, firm entry and exit rates have fallen, suggesting that the creative destruction process has lost some of its vitality. Meanwhile, productivity growth has slowed. Some believe that lower entry and exit rates partly explain the weaker productivity growth.
Dismiss the Gap? A Real-Time Assessment of the Usefulness of Canadian Output Gaps in Forecasting InflationWe use a new real-time database for Canada to study various output gap measures. This includes recently developed measures based on models incorporating many variables as inputs (and therefore requiring real-time data for many variables).
There is widespread agreement that, in the United States, higher house prices raise consumption via collateral or possibly wealth effects. The presence of similar channels in Canada would have important implications for monetary policy transmission.
This paper examines empirically the impact of financial stress on the transmission of monetary policy shocks in Canada. The model used is a threshold vector autoregression in which a regime change occurs if financial stress conditions cross a critical threshold.
The authors document the research output of 34 central banks from 1990 to 2003, and use proxies of research inputs to measure the research productivity of central banks over this period.
Canada's Exchange Rate Regime and North American Economic Integration: The Role of Risk-Sharing MechanismsOur contribution in this paper is threefold. First, we survey the empirical literature on consumption smoothing mechanisms of regional economic shocks. Second, building on the work of Asdrubali et al. (1996), we present evidence on the role played by various smoothing mechanisms for specific economic shocks affecting Canadian provinces. Third, we assess whether smoothing mechanisms […]
This paper surveys the recent literature on optimal currency areas (OCAs). Topics that are covered include theoretical developments in the context of general-equilibrium models and empirical work on shocks asymmetry and adjustment mechanisms. Issues relating to the endogeneity of OCA criteria, the role of exchange rate flexibility in promoting greater macroeconomic stability, and the links […]
Résultats empiriques multi-pays relatifs à l'impact des cibles d'inflation sur la crédibilité de la politique monétaireOver the last few years, many countries have adopted inflation targets. The objective of this paper is to report some empirical results that bear on the link between the adoption of inflation targets and the behaviour of the main macroeconomic variables. After a discussion of some recent articles analyzing international experience, some simple statistical tests […]
In this report, the authors examine and compare twelve private and public sector models of the Canadian economy with respect to their paradigm, structure, and dynamic properties. These open-economy models can be grouped into two economic paradigms.
In this report, we evaluate several simple monetary policy rules in twelve private and public sector models of the Canadian economy. Our results indicate that none of the simple policy rules we examined is robust to model uncertainty, in that no single rule performs well in all models.
In this paper, we discuss some methodologies for estimating potential output and the output gap that have recently been studied at the Bank of Canada. The assumptions and econometric techniques used by the different methodologies are discussed in turn, and applications to Canadian data are presented.
In this paper, the authors examine how well the Hodrick-Prescott filter (HP) and the band-pass filter recently proposed by Baxter and King (BK) extract the business-cycle component of macroeconomic time series.