Staff working papers

In this paper, we develop a new way to test hypotheses about policy-makers' targets, and we implement that test for Canadian monetary policy.

The effective conduct of monetary policy is complicated by uncertainty about the level of potential output, and thus about the size of the monetary policy response that would be sufficient to achieve the targeted inflation rate. One possible response to such uncertainty is for the monetary authority to "probe," interpreted here as actively using its policy response to learn about the level of potential output.

The observed predictability of excess returns in equity and foreign exchange markets has largely been attributed to the presence of time-varying risk premiums in these markets. For example, excess equity returns were found to be explained by various financial and economic variables.

Pricing-to-market (PTM) theory suggests that monopolistic firms which export adjust their destination-specific markups in reaction to exchange rate shocks. These adjustments limit changes in the price of their exports.

Previous studies have shown that interest rate yield spreads contain useful information about future changes in inflation. However, such studies have for the most part focused on linear models, ignoring potential non-linearities between interest rates and inflation.

A number of authors have suggested that economies face a long-run inflation-unemployment trade-off due to downward nominal-wage rigidity. This theory has implications for the nature of the short-run Phillips curve when wage inflation is low.

The debate on the order of integration of interest rates has long focused on the I(1) versus I(0) distinction. In this paper, we use instead the wavelet OLS estimator of Jensen (1999) to estimate the fractional integration parameters of several interest rates for the United States and Canada from 1948 to 1999.

This paper explores the extent to which factors other than commodity and energy prices may have contributed to the Canadian dollar's depreciation since the early 1970s. The variables considered include among others budgetary conditions and productivity.

This paper examines the structural determinants of the personal savings rate in Canada over the last 30 years, using cointegration techniques. The main finding is that the real interest rate, expected inflation, the ratio of the all-government fiscal balances to nominal GDP, and the ratio of household net worth to personal disposable income are the most […]

State-space models have long been popular in explaining the evolution of various economic variables. This is mainly because they generally have more economic content than do others in their class of parsimonious models (for example, VARs). Yet, in spite of their advantages, use of these models until recently was limited by the assumption that all […]