Staff working papers
La fiabilité des estimations de l'écart de production au CanadaIn this paper, we measure, with Canadian data, the scope of the revisions to real-time estimates of the output gap generated with several univariate and multivariate techniques. We also make an empirical evaluation of the usefulness of the output gap estimates for predicting inflation.
Fads or Bubbles?This paper tests between fads and bubbles using a new empirical strategy (based on switching-regression econometrics) for distinguishing between competing asset-pricing models. By extending the Blanchard and Watson (1982) model, we show how stochastic bubbles can lead to regime-switching in stock market returns.
Reconsidering Cointegration in International Finance: Three Case Studies of Size Distortion in Finite SamplesThis paper reconsiders several recently published but controversial results about the behaviour of exchange rates. In particular, it explores finite-sample problems in the application of cointegration tests and shows how these may have affected the conclusions of recent research.
Speculative Behaviour, Regime-Switching and Stock Market CrashesThis paper uses regime-switching econometrics to study stock market crashes and to explore the ability of two very different economic explanations to account for historical crashes. The first explanation is based on historical accounts of "manias and panics."
Avoiding the Pitfalls: Can Regime-Switching Tests Detect Bubbles?Work on testing for bubbles has caused much debate, much of which has focussed on methodology. Monte Carlo simulations reported in Evans (1991) showed that standard tests for unit roots and cointegration frequently reject the presence of bubbles even when such bubbles are present by construction. Evans referred to this problem as the pitfall of testing for bubbles.
Unit-Root Tests and Excess ReturnsSeveral recent papers have presented evidence from foreign exchange and other markets suggesting that the log of excess returns can be characterized as first-order integrated processes (I(1)). This contrasts sharply with the "conventional" wisdom that log prices are integrated of order one I(1) and that log returns should therefore be integrated of order zero I(0), and even more sharply with the view that past returns have no ability to predict future returns (weak market efficiency).
Regime-Switching Models: A Guide to the Bank of Canada Gauss ProceduresThis paper is a user's guide to a set of Gauss procedures developed at the Bank of Canada for estimating regime-switching models.
Exchange Rates and Oil PricesThis paper derives analytical gradients for a broad class of regime-switching models with Markovian state-transition probabilities. Such models are usually estimated by maximum likelihood methods, which require the derivatives of the likelihood function with respect to the parameter vector. These gradients are usually calculated by means of numerical techniques. The paper shows that analytical gradients […]
Analytical Derivatives for Markov Switching ModelsThis paper derives analytical gradients for a broad class of regime-switching models with Markovian state-transition probabilities. Such models are usually estimated by maximum likelihood methods, which require the derivatives of the likelihood function with respect to the parameter vector. These gradients are usually calculated by means of numerical techniques. The paper shows that analytical gradients […]
Measurement of the Output Gap: A Discussion of Recent Research at the Bank of CanadaIn 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.
Excess Volatility and Speculative Bubbles in the Canadian Dollar: Real or Imagined?Greater intervention by the public sector is often proposed as a solution to the increased speculation and excessive price volatility thought to characterize today's competitive world financial system.
Bank of Canada Review articles
May 8, 1995