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A central bank's main concern is the general direction of future inflation, and not transitory fluctuations of the inflation rate. As a result, this paper is concerned with forecasting a simple measure of the trend of inflation, the eight-quarter CPI-inflation rate. The primary objective is to improve the M1-based vector-error-correction model (VECM) developed by Hendry […]

This paper examines the ability of a number of financial variables to predict Canadian recessions. Regarding methodology, we follow closely the technique employed by Estrella and Mishkin (1998), who use a probit model to predict U.S. recessions up to eight quarters in advance. Our main finding is that the spread between the yield on Canadian […]

This paper surveys the empirical literature on the benefits of low inflation, emphasizing contributions since 1990. It follows the framework of a section in the Bank's 1990 Annual Report, "The benefits of price stability."

In a recent article, Faust and Leeper (1997) discuss reasons why inference from structural VARs identified with long-run restrictions may not be reliable. In this paper, the authors argue that there are reasons to believe that Faust and Leeper's arguments are not devastating in practice. First, simulation exercises suggest that this approach does well when […]

The authors' purpose in this paper is to isolate the respective contributions of budgetary and monetary policy in Canada and the United States to the behaviour of unemployment rates in the two countries. Their method consists of estimating VAR models and using long-term identification restrictions to perform a structural analysis. Budgetary policy shocks are defined […]

The financial services industry has been undergoing significant change in recent years. This paper analyzes some key developments affecting the industry and examines some important issues facing the industry and its regulators.

This paper examines the major changes in the Canadian banking system since the Second World War, with special attention paid to the differences between Canadian and U.S. developments over this period.

Empirical evidence suggests that the unemployment rate and the export/GNP ratio are positively correlated with external debt across developing countries. This paper develops a dynamic model that provides an explanation for the aforementioned relationships. The central idea of our paper is that international borrowing affects unemployment and specialization patterns by unevenly changing the risk-sharing structure—across […]

A small-open-economy model is developed to examine how the method of food aid disbursement affects labor employment, food security and aggregate welfare, in recipient countries, in an environment in which private sector firms pay efficiency wages to induce effort. Two forms of food aid delivery are considered: first is project food aid, under which food […]

Canada's economic performance in the first half of the 1990s was adversely affected by high premiums in interest rates that were brought on by political and economic uncertainties.