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This study on overinvestment differs from the existing literature in that investment in machinery and equipment is modelled as a structural vector autoregression with identification achieved by imposing long-run restrictions, as in Blanchard and Quah (1989).

The authors study the price - volume dynamics ahead of the first public announcement of a takeover for 420 Canadian firms from 1985 to 2002.

The break-even inflation rate (BEIR) is calculated by comparing the yields on conventional and Real Return Bonds. Defined as the average rate of inflation that equates the expected returns on these two bonds, the BEIR has the potential to contain useful information about long-run inflation expectations. Yet the BEIR has been higher, on average, and more variable than survey measures of inflation expectations, which may be explained by the effects of premiums and distortions embedded in the BEIR. Because of the difficulty in accounting for these distortions, the BEIR should not be given a large weight as a measure of long-run inflation expectations at this time. However, as the Real Return Bond market continues to develop, the BEIR should become a more useful indicator of inflation expectations. At present, it demonstrates no clear advantage over survey measures and even past inflation rates in forecasting near-term inflation.

Remarks by David Longworth, Deputy Governor of the Bank of Canada to the Canadian Association for Business Economics

The authors model trading by foreign and domestic investors in developed-country equity markets.

The authors conduct a counterfactual simulation of the proposed rules under the new Basel Capital Accord (Basel II), including the revised treatment of expected and unexpected credit losses proposed by the Basel Committee in October 2003.

Since the early 1980s, long-term government bond yields in the euro zone have declined, in line with those in other industrialized countries.

The authors construct three financial conditions indexes (FCIs) for Canada based on three approaches: an IS-curve-based model, generalized impulse-response functions, and factor analysis.

This paper investigates the question of whether a transition to a low-inflation environment, induced by a shift in monetary policy, results in a decline in the degree of pass-through of exchange rate movements to consumer prices.

The author suggests that commodity-linked bonds could provide a potential means for less-developed countries (LDCs) to raise money on the international capital markets, rather than through standard forms of financing.