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This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.

We propose an uncovered expected returns parity (URP) condition for the bilateral spot exchange rate. URP implies that unilateral exchange rate equations are misspecified and that equity returns also affect exchange rates. Fama regressions provide evidence that URP is statistically preferred to uncovered interest rate parity (UIP) for nominal bilateral exchange rates between the US dollar and six countries (Australia, Canada, Japan, Norway, Switzerland and the UK) at the monthly frequency.

Many important economic variables are subject to revision. This article explains how, when, and why such revisions occur; how revisions to Canadian gross domestic product (GDP) compare with GDP revisions in some other countries; which GDP components are subject to the largest revisions; and how data revisions can affect policy decisions. The author finds that revisions to Canadian GDP tend to be smaller, on average, than those of some other countries, and that among the GDP components, exports and imports are most heavily revised.

Global growth is expected to remain solid, supported by the boom in investment in artificial intelligence and by fiscal stimulus in several major economies.

Since last summer, many of us here today have been preoccupied with the ongoing dislocations in financial markets. What began in securities linked to U.S. subprime mortgages has spread to a broad range of structured assets, conventional credit markets, and, to a lesser extent, equities.

We analyze the interaction between committed monetary policy and discretionary fiscal policy in a model with public debt, endogenous government expenditures, distortive taxation and nominal rigidities.

We study how the interaction of market power and nominal price rigidity influences inflation dynamics. We find that pass-through declines with price stickiness when markets are concentrated, which implies a lower slope of the New Keynesian Phillips curve.

We study access to Canadian retail banking and cash services in rural, localized markets using the Bresnahan-Reiss entry threshold framework. We find that the first retail banking services branch entry requires about 500 residents in an average market, whereas the first cash services location requires about 80 residents.

This paper analyzes the optimal quantity of central bank reserves in an economy where reserves and other financial assets provide liquidity benefits. Using a static model, I derive a constrained Friedman rule that characterizes the socially optimal level of reserves, demonstrating that this quantity is neither necessarily large nor small but depends on the marginal benefits of reserves relative to alternative safe assets.

This paper introduces CLONE, a method that decomposes asset price movements into aggregate demand, productivity, inflation, and monetary policy news, using stocks, bonds, and inflation swaps. CLONE simplicity and forward-looking focus helps guide policymakers in determining the economic drivers behind asset price movements.