Canadian Short-Term Interest Rates and the BAX Futures Market: Analysis of the Impact of Volatility on Hedging Activity and the Correlation of Returns between Markets Staff Working Paper 1997-18 David Watt This paper analyses how Canadian financial firms manage short-term interest rate risk through the use of BAX futures contracts. The results show that the most effective hedging strategy is, on average, a static strategy based on linear regression that assumes constant variances, even though dynamic models allowing for time-varying variances are found to have superior explanatory power. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Interest rates JEL Code(s): E, E4, E43
Canadian Policy Analysis Model: CPAM Staff Working Paper 1997-16 Richard Black, David Rose This paper documents the structure and properties of the Canadian Policy Analysis Model (CPAM). CPAM is designed to provide a reasonably complete representation of the Canadian macro economy. Content Type(s): Staff research, Staff working papers Topic(s): Economic models JEL Code(s): C, C5, C53, E, E1, E17
The Effects of Budget Rules on Fiscal Performance and Macroeconomic Stabilization Staff Working Paper 1997-15 Jonathan Millar Budget rules can be defined as legislated or constitutional constraints on government deficits, taxes, expenditures, or debt. This paper reviews the budget rules recently legislated in six of Canada's provinces and both of its territories, as well as budget rules in other OECD countries. Content Type(s): Staff research, Staff working papers Topic(s): Fiscal policy JEL Code(s): E, E6, E62, H, H3, H6, H61
Menu Costs, Relative Prices, and Inflation: Evidence for Canada Staff Working Paper 1997-14 Robert Amano, Tiff Macklem The menu-cost models of price adjustment developed by Ball and Mankiw (1994;1995) predict that short-run movements in inflation should be positively related to the skewness and the variance of the distribution of disaggregated relative-price shocks in each period. We test these predictions on Canadian data using the distribution of changes in disaggregated producer prices to measure the skewness and standard deviation of relative-price shocks. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Monetary policy framework JEL Code(s): C, C5, C52, E, E3, E31
What Does Downward Nominal-Wage Rigidity Imply for Monetary Policy? Staff Working Paper 1997-13 Seamus Hogan A recent paper has suggested there might be a trade-off between inflation and unemployment at low inflation rates and this has led some economists to recommend that Canada increase its inflation rate. Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets, Monetary policy framework, Monetary policy transmission JEL Code(s): C, C5, C52, E, E2, E24, E5, E50
A Micro Approach to the Issue of Hysteresis in Unemployment: Evidence from the 19881990 Labour Market Activity Survey Staff Working Paper 1997-12 Gordon Wilkinson This paper uses a rich set of microeconomic labour market data—the 198890 Labour Market Activity Survey published by Statistics Canada—to test whether there is negative duration dependence in unemployment spells. It updates and extends similar work carried out by Jones (1995) who used the 198687 Labour Market Activity Survey. Content Type(s): Staff research, Staff working papers Topic(s): Labour markets JEL Code(s): E, E2, E24
A Band-Aid Solution to Inflation Targeting Staff Working Paper 1997-11 Robert Amano, Richard Black, Marcel Kasumovich This paper reviews selectively the literature on exchange rate target zones and corresponding methodologies and examines whether they can be used to analyse the inflation-control problem. Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets JEL Code(s): E, E3, E31, E5, E50
The Structure of Interest Rates in Canada: Information Content about Medium-Term Inflation Staff Working Paper 1997-10 Jim Day, Ron Lange This paper examines the relationship between the term structure of interest rates and future changes in inflation for Canada using a newly constructed par-value yield series. The main conclusion of the empirical work is that the slope of the nominal term structure from 1- to 5-year maturities is a reasonably good predictor of future changes in inflation over these horizons. Content Type(s): Staff research, Staff working papers Topic(s): Interest rates, Monetary and financial indicators JEL Code(s): E, E4, E43
Mesures du taux d'inflation tendanciel Staff Working Paper 1997-9 Thérèse Laflèche In this paper, the author calculates new measures of the trend inflation rate using changes in the components of total CPI; the hypothesis is that extreme fluctuations in certain prices reflect temporary supply shocks rather than any basic price trend. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices JEL Code(s): E, E3, E31
Implementation of Monetary Policy in a Regime with Zero Reserve Requirements Staff Working Paper 1997-8 Kevin Clinton Monetary policy can be implemented effectively without reserve requirements as long as cost incentives ensure a predictable demand for settlement balances. A central bank can then achieve the level of short-term interest rates that it desires, using market-oriented instruments only. Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy implementation JEL Code(s): E, E5, E52