Financial Stress, Monetary Policy, and Economic Activity

This paper examines empirically the impact of financial stress on the transmission of monetary policy shocks in Canada. The model used is a threshold vector autoregression in which a regime change occurs if financial stress conditions cross a critical threshold. Using the financial stress index developed by Illing and Liu (2006) as a measure of the Canadian financial stress conditions, the authors examine questions such as: Do contractionary and expansionary monetary policy shocks have symmetric effects? Do financial stress conditions play a role as a nonlinear propagator of monetary policy shocks? Does monetary policy have the same effect on the real economy in the low financial stress regime and in the high financial stress regime? Suppose that the economy is currently in a given financial stress regime, do monetary policy shocks have a substantial effect on the transition probability of moving from the given regime to the other? The empirical findings reveal that (i) contractionary monetary shocks typically have a larger effect on output than expansionary monetary shocks; (ii) the effects of large and small shocks are approximately proportional; (iii) expansionary monetary shocks have larger effects on output in the high financial stress regime than in the low financial stress regime; (iv) large expansionary monetary shocks increase the likelihood of moving to, or remaining in, the low financial stress regime; (v) typically, high financial stress regime has been characterized by weaker output growth, higher inflation, and higher interest rates.Financial stability; Monetary policy and uncertainty

The Evolving Financial System and Public Policy: Conference Highlights and Lessons

At the 12th annual Bank of Canada economic conference, held in Ottawa on 4 and 5 December 2003, representatives from various public and private organizations and Bank of Canada staff discussed papers presented on three key issues affecting the financial system: financial contagion, the implications of bank diversification, and financial sector regulation. Papers on financial contagion studied the effect of globalization on Canadian foreign-asset exposures, developed a general-equilibrium model of a competitive interfirm lending market in which firms can borrow or lend, and used market-based indicators to determine the probability that contagion can be generated by interbank exposures. The papers on bank diversification focused on the links between the changing behaviour of financial institutions and risk-return trade-offs. Issues of financial sector regulation included the relationship between governance and financial sector soundness, the theoretical basis of bank regulations for capital requirements, and the implications of bank capital requirements for the transmission of monetary policy. A panel discussion provided extended discussion of the conference papers.

Real Exchange Rate Indexes for the Canadian Dollar

In this article, the authors explain the methodology used to construct real exchange rate (RER) indexes. They also compare and assess various Canadian RER indexes from both an empirical and conceptual standpoint. The authors conclude that both theory and empirical evidence suggest that the best RER indexes are those based on unit labour costs. They note, however, that, for practical reasons, policy-makers should also consider RER indexes based on prices when formulating monetary policy.

Do the Hodrick-Prescott and Baxter-King Filters Provide a Good Approximation of Business Cycles?

In this paper, the authors examine how well the Hodrick-Prescott (HP) and the band-pass filter recently proposed by Baxter and King (BK) extract the business-cycle component of macroeconomic time series. The authors assess these filters using two different definitions of the business-cycle component. First, they define that component to be fluctuations lasting no fewer than six and no more than thirty-two quarters; this is the definition of business-cycle frequencies used by Baxter and King. Second, they define the business-cycle component on the basis of a decomposition of the series into permanent and transitory components. In both cases the conclusions are the same. The filters perform adequately when the spectrum of the original series has a peak at business-cycle frequencies. When the spectrum is dominated by low frequencies, the filters provide a distorted business cycle. Since most macroeconomic series have the typical Granger shape, the HP and BK filters perform poorly in terms of identifying the business cycles of these series. Dans la présente étude, les auteurs cherchent à évaluer l'efficacité avec laquelle le filtre de Hodrick-Prescott (HP) et le filtre passe-bande récemment proposé par Baxter et King (BK) permettent d'isoler la composante cyclique des séries macroéconomiques. Ils utilisent deux définitions du cycle économique pour comparer la performance de ces filtres. Selon la première définition (celle que retiennent Baxter et King), la composante cyclique correspond à des fluctuations d'une durée minimale de six trimestres et maximale de trente-deux trimestres. L'autre définition du cycle consiste dans la décomposition de la série en deux composantes, l'une permanente et l'autre transitoire. Les auteurs parviennent aux mêmes conclusions peu importe la définition utilisée. Les filtres donnent des résultats satisfaisants lorsque le spectre de la série initiale atteint un sommet au voisinage des fréquences comprises entre six et trente-deux trimestres. Lorsque le spectre est dominé par les basses fréquences, le cycle économique obtenu donne une image faussée de la réalité. Comme la forme spectrale de la plupart des séries macroéconomiques ressemble à celle que Granger a mise en lumière, les filtres HP et BK réussissent mal à isoler la composante cyclique de ces séries.Mechanical filters; business cycles; spectrum

Financial Stress, Monetary Policy, and Economic Activity

The recent global crisis was characterized by a remarkable intensity in the negative feedback process between financial sector developments and the real economy. Exceptional measures were required to break this process, and the crisis stimulated interest in the relationship between financial sector developments, the real economy, and monetary policy. The authors examine this relationship by reviewing the relevant literature and then estimating a model with Canadian data. Both theoretical models and empirical findings point to the possibility of non-linear relationships between monetary policy, financial stress, and the real economy. The research indicates that when the economy can move into different regimes of financial stress, monetary policy can influence the likelihood of moving from one regime to another. It also implies that monetary policy actions have stronger effects when financial stress is high and that the tightening of monetary policy appears to have more powerful effects than easing.

Globalizing Rhetoric: Using Rhetorical Concepts to Identify and Analyze Cultural Expectations (Specialized Knowledge) Related to Genres

The growing connections among international economies means that professionals will increasingly find themselves interacting with persons from other cultures. Cultures, however, can have different expectations of what constitutes an effective professional communiqué. This article examines how the rhetorical factors of the forum, ethos, and the special topics provide a mechanism for identifying and analyzing such differences

The rise and early development of the Princeton school of theology

The purpose of this thesis is to describe the rise and early development of the Princeton school of theology with special reference to Archibald Alexander, Charles Hodge, and Archibald Alexander Hodge. Excluding the historical background, the period covered is from the founding of Princeton Theological Seminary, in 1812, until the death of Archibald Alexander Hodge, in 1886.During and immediately following the period under investigation many estimates of the Princeton school appeared. The Princeton professors wrote voluminously, especially in the Princeton Review. Ample biographical material about Alexander and the Hodges is available. Comments about the Princeton school are scattered throughout many of the religious periodicals of the period. In the very nature of the case, this constitutes a mass of valuable but biased material, which must be handled with caution by the historian. It provides the estimate which, for the most part, the Princeton school gave of itself. The writings by the partisans of the Princeton position, of course, treat the Princeton theology in a normative and, therefore, unhistorical fashion and consider it the final theological formulation. From the New England theologians came a similar type of source material but, of course, devoted to a searching criticism of Princeton and all her works. The two schools, Princeton and New England, were rooted in a common Calvinism but a deep doctrinal cleavage nevertheless separated them. The great mass of material produced in this polemical struggle is, of course, singularly prejudiced. Little objective study has been expended upon these sources with the view to a historical reconstruction of the Princeton school, of which there is, therefore, no critical historical study. There are two ample and objective treatments of the New England theology but both suffer from a failure to appreciate the significance of the Princeton school, against which the nineteenth century New England divines worked out their doctrinal views. The writer feels that a genuine gap exists in American theological history as result of this striking neglect. This has militated against the achievement of a proper historical perspective by students of American theology. A desire to fill part of this lacuna has prompted this thesis