August 10, 1996
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2334
result(s)
Avoiding the Pitfalls: Can Regime-Switching Tests Detect Bubbles?
Staff Working Paper 1996-11
Simon van Norden,
Robert Vigfusson
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.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Econometric and statistical methods
JEL Code(s):
C,
C2,
C22,
C5,
C52
Unit-Root Tests and Excess Returns
Staff Working Paper 1996-10
Marie-Josée Godbout,
Simon van Norden
Several 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).
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Econometric and statistical methods
JEL Code(s):
C,
C1,
C12,
F,
F3,
F31
Does Inflation Uncertainty Vary with the Level of Inflation?
Staff Working Paper 1996-9
Allan Crawford,
Marcel Kasumovich
The purpose of this study is to test the hypothesis that inflation uncertainty increases at higher levels of inflation. Our analysis is based on the generalized autoregressive conditional heteroscedasticity (GARCH) class of models, which allow the conditional variance of the error term to be time-varying. Since this variance is a proxy for inflation uncertainty, a positive relationship between the conditional variance and inflation would be interpreted as evidence that inflation uncertainty increases with the level of inflation.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Inflation and prices,
Monetary policy and uncertainty
JEL Code(s):
C,
C5,
C52,
E,
E3,
E31
Interpreting Money-Supply and Interest-Rate Shocks as Monetary-Policy Shocks
Staff Working Paper 1996-8
Marcel Kasumovich
In this paper two shocks are analysed using Canadian data: a money-supply shock ("M-shock") and an interest-rate shock ("R-shock"). Money-supply shocks are derived using long-run restrictions based on long-run propositions of monetary theory. Thus, an M-shock is represented by an orthogonalized innovation in the trend shared by money and prices.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Monetary and financial indicators,
Monetary policy transmission
JEL Code(s):
E,
E4,
E43,
E5,
E51
Excess Volatility and Speculative Bubbles in the Canadian Dollar: Real or Imagined?
Technical Report No. 76
John Murray,
Simon van Norden,
Robert Vigfusson
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.
Content Type(s):
Staff research,
Technical reports
Topic(s):
Exchange rates
JEL Code(s):
C,
C4,
C40,
F,
F3,
F31
May 11, 1996
Recent developments in monetary aggregates and their implications
In 1995, the broad aggregate M2+ grew at an annual rate of 4.5 per cent—almost twice the rate recorded in 1994—as competition from mutual funds drew less money from personal savings deposits. An adjusted M2+ aggregate, which internalizes the effect of close substitutes such as CSBs and certain mutual funds, grew by only 3.4 per cent. Gross M1 grew by 8.2 per cent during the year, reflecting an increased demand for transactions balances as market interest rates declined and as banks offered more attractive rates of interest on corporate current account balances. The robust growth of gross M1 in the second half of 1995 suggests a moderate expansion of economic activity in the first half of 1996, while moderate growth in the broad aggregates indicates a rate of monetary expansion consistent with continued low inflation. In this annual review of the monetary aggregates, the authors also introduce a new model, based on calculated deviations of M1 from its long-run demand, which suggests that inflation should remain just below the midpoint of the inflation-control target range over the next couple of years.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Monetary aggregates,
Recent economic and financial developments
May 10, 1996
Financing activities of provincial governments and their enterprises
This article examines the changes that have occurred in the composition of funds raised by provincial borrowers during the 1990s. Higher financing requirements, coupled with the declining availability of funds from non-market sources such as the Canada Pension Plan, led provincial governments and their Crown corporations to broaden and to diversify their debt management programs. In particular, provincial borrowers expanded their presence in foreign bond markets, increased their issuance of floating-rate debt, and incorporated a wide variety of innovative debt instruments into their borrowing programs in order to minimize their borrowing costs and to manage the risks associated with the issuing of debt. As a result, the composition of funds raised by provincial borrowers during the 1990s differed markedly from that of the previous decade: between 1990 and 1995, provincial borrowing requirements were met almost entirely through the issuance of marketable debt, and net new foreign currency debt issues averaged nearly 50 per cent of funds raised, whereas between 1980 and 1989, non-market sources provided close to 30 per cent of funds raised, and net new foreign currency debt issues provided less than 20 per cent.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Debt management,
Fiscal policy
May 9, 1996
The role of inventory management in Canadian economic fluctuations
Swings in inventory investment have traditionally played a major role in Canadian business cycles. However, advances in inventory-control techniques and the reduced uncertainty associated with lower inflation have enabled firms to manage their inventories much more tightly and effectively. This article examines recent developments in the management of non-farm business inventories in Canada at both the aggregate and the sectoral level and looks at implications for the role of inventories as a source of economic fluctuation.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Domestic demand and components
An Econometric Examination of the Trend Unemployment Rate in Canada
Staff Working Paper 1996-7
Denise Côté,
Doug Hostland
This paper attempts to identify the trend unemployment rate, an empirical concept, using cointegration theory. The authors examine whether there is a cointegrating relationship between the observed unemployment rate and various structural factors, focussing neither on the non-accelerating-inflation rate of unemployment (NAIRU) nor on the natural rate of unemployment, but rather on the trend unemployment rate, which they define in terms of cointegration.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Labour markets
JEL Code(s):
E,
E2,
E24