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1162. Economic survey of Canada, 2003
- Publication Date:
- 09-2003
- Content Type:
- Policy Brief
- Institution:
- The Organisation for Economic Co-operation and Development
- Abstract:
- Canada's economy has done comparatively well over the past two years, demonstrating a noticeably improved resilience to unfavourable shocks. Over the medium term the economy is poised to achieve growth rates that compare favourably with past performance, but that will not be enough to eliminate the per capita income gap with the United States. The fundamental challenge is to make Canada an even more attractive place to live, work and invest. While past reforms have begun to pay off, there is still unfinished business. To boost the employment rate further the government should reduce disincentive effects arising from the tax and benefit systems by, for example, making greater use of in-work benefits and reintroducing experience rating of Employment Insurance users. Faster productivity gains are more likely to be achieved in an economic environment conducive to innovation. A key to greater dynamism is strengthening competition by eliminating remaining foreign ownership limits and barriers to internal and external trade and continuing electricity deregulation. Investing in skills should also remain a priority, with a particular emphasis on adult education. The nation has benefited by importing human capital from abroad through immigration but needs to intensify its efforts to remove the obstacles that prevent immigrants from having their skills fully utilised in the labour market. Having introduced a sound fiscal framework and reformed its public pension system Canada is in a better position than most other countries in facing ageing-related fiscal challenges, but the trend rise in health-care costs remains a risk. With the recent budget the government chose to address the short-term needs of the existing system. But, ultimately, ways to control the rise in budgetary costs - whether through incentives to raise efficiency or through cost sharing - will need to be explored, otherwise the resources needed to finance the future burden should be set aside in advance, for example by setting a bolder debt reduction target. Finally, environmental sustainability will be enhanced with least cost to the economy if the ambitious greenhouse gas emissions reduction is achieved through market-oriented instruments rather than command and control measures or voluntary agreements.
- Topic:
- Diplomacy, Economics, International Organization, International Trade and Finance, and Political Economy
- Political Geography:
- United States and Canada
1163. Living at the Edge: America's Low-Income Children and Families
- Author:
- Hsien-Hen Lu, Younghwan Song, Mary Clare Lennon, and J. Lawrence Aber
- Publication Date:
- 10-2003
- Content Type:
- Working Paper
- Institution:
- Institute for Social and Economic Research and Policy at Columbia University
- Abstract:
- By analyzing data from the Current Population Survey March Supplements, Living at the Edge explores the following questions about children in low-income families in the United States: What are the overall changes in the low-income and poverty rates for children over the past quarter century? How has the population of children in low-income families changed over the past decade? Which children are more likely to live in low-income families? How have changes in parental employment status affected the likelihood of children living in low-income families? What are the state by state variations in child low-income and poverty rates, and how have these changed in the last decade? How does a more inclusive definition of family income and expenses affect our understanding of the poverty and near-poverty rates of children in low-income families? This report helps document significant improvements in the child lowincome rate as well as the significant decrease in the proportion of children who relied on public assistance during the 1990s. However, Living at the Edge also finds a notable increase in the share of children who lived in near-poor families (those with incomes between 100 and 200 percent of the poverty line) among children in low-income families during the 1990s. Many disadvantaged groups of children, including those with young parents, minority parents, parents with limited education, or unmarried parents, were less likely to live in poor or lowincome families in the late 1990s than such children a decade earlier. The improvement in the child low-income rates of these disadvantaged groups was closely related to an increase in parental employment during the late 1990s. However, the low-income rate worsened for children whose more educated parent had a high-school diploma but no college education. For children of many disadvantaged social groups, parental employment appears to do less to protect them from economic hardship then it did a decade earlier. The groups that suffered the most in reduced economic security given parental employment status were those in the medium risk ranks (children in families with at least one parent between ages 25 to 39, children whose more educated parent had only has a high school diploma, and in father-only families). The report also notes that the official measure of poverty ignores the burden of medical and work related expenses as well as taxes and therefore tends to underestimate the share of children in near-poor and low-income families facing economic insecurity. Finally, we discuss the policy implications for our findings.
- Topic:
- Economics, Human Welfare, and Poverty
- Political Geography:
- United States
1164. The Response of Hours to a Technology Shock: Evidence Based on Direct Measures of Technology
- Author:
- Robert J. Vigfusson, Lawrence J. Christiano, and Martin Eichenbaum
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- We investigate what happens to hours worked after a positive shock to technology, using the aggregate technology series computed in Basu, Fernald and Kimball (1999). We conclude that hours worked rise after such a shock.
- Topic:
- Economics, Industrial Policy, and Science and Technology
- Political Geography:
- United States
1165. How Does the Border Affect Productivity? Evidence from American and Canadian Manufacturing Industries
- Author:
- Robert J. Vigfusson
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- This paper studies how much of productivity fluctuations are industry specific versus how much are country specific. Using data on manufacturing industries in Canada and the United States, the paper shows that the correlation between cross-border pairings of the same industry are more often highly correlated than previously thought. In addition, the paper confirms earlier findings that the similarity of input use can help describe the co-movement of productivity fluctuations across industries.
- Topic:
- Economics, Industrial Policy, and Science and Technology
- Political Geography:
- United States, Canada, and North America
1166. Breaks in the Variability and Co-Movement of G-7 Economic Growth
- Author:
- Jon Faust and Brian M. Doyle
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- This paper investigates breaks in the variability and co-movement of output, consumption, and investment in the G-7 economies. In contrast with most other papers on co-movement, we test for changes in co-movement allowing for breaks in mean and variance. Despite claims that rising integration among these economies has increased output correlations among them, we find no clear evidence of an increase in correlation of growth rates of output, consumption, or investment. This finding is true even for the United States and Canada, which have seen a tremendous increase in bilateral trade shares, and for the members of the euro area in the G-7.
- Topic:
- International Relations, Economics, and International Trade and Finance
- Political Geography:
- United States, Canada, and North America
1167. The High-Frequency Response of Exchange Rates and Interest Rates to Macroeconomic Announcements
- Author:
- John H. Rogers, Jonathan H. Wright, Jon Faust, and Shing-Yi B. Wang
- Publication Date:
- 10-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- Many recent papers have studied movements in stock, bond, and currency prices over short windows of time around macro announcements. This paper adds to the announcement effects literature in two ways. First, we study the joint announcement effects across a broad range of assets--exchange rates and U.S. and foreign term structures. In order to evaluate whether the joint effects can be reconciled with conventional theory, we interpret the joint movements in light of uncovered interest rate parity or changes in risk premia. For several real macro announcements, we find that a stronger than expected release appreciates the dollar today, but that it must either (i) lower the relative risk premium for holding foreign currency rather than dollars, or (ii) imply considerable future expected dollar depreciation. The latter implies an overshooting behavior akin to that described by Dornbusch (1976). Second, we use a longer span of high frequency data than has been common in announcement work. A longer span of high frequency data contributes to the precision of our estimates and allows us to explore the possibility that the effects of macro surprises on asset prices have varied over time. We find evidence, for example, that PPI releases had a larger effect on U.S. interest rates before about 1992 than subsequently.
- Topic:
- International Relations, Economics, Government, and International Trade and Finance
- Political Geography:
- United States
1168. Productive Capacity, Product Varieties, and the Elasticities Approach to the Trade Balance
- Author:
- Joseph E. Gagnon
- Publication Date:
- 10-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- Most macroeconomic models imply that faster output growth tends to lower a country's trade balance by raising its imports with little change to its exports. Krugman (1989) proposed a model in which countries grow by producing new varieties of goods. In his model, faster-growing countries are able to export these new goods and maintain balanced trade without suffering any deterioration in their terms of trade. This paper analyzes the growth of U.S. imports from different source countries and finds strong support for Krugman's model.
- Topic:
- International Relations, Economics, and International Trade and Finance
- Political Geography:
- United States
1169. Forecasting U.S. Inflation by Bayesian Model Averaging
- Author:
- Jonathan H. Wright
- Publication Date:
- 09-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- Recent empirical work has considered the prediction of inflation by combining the information in a large number of time series. One such method that has been found to give consistently good results consists of simple equal weighted averaging of the forecasts over a large number of different models, each of which is a linear regression model that relates inflation to a single predictor and a lagged dependent variable. In this paper, I consider using Bayesian Model Averaging for pseudo out-of-sample prediction of US inflation, and find that it gives more accurate forecasts than simple equal weighted averaging. This superior performance is consistent across subsamples and inflation measures. Meanwhile, both methods substantially outperform a naive time series benchmark of predicting inflation by an autoregression.
- Topic:
- International Relations, Economics, and International Trade and Finance
- Political Geography:
- United States
1170. Bayesian Model Averaging and Exchange Rate Forecasts
- Author:
- Jonathan H. Wright
- Publication Date:
- 09-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- Exchange rate forecasting is hard and the seminal result of Meese and Rogoff (1983) that the exchange rate is well approximated by a driftless random walk, at least for prediction purposes, has never really been overturned despite much effort at constructing other forecasting models. However, in several other macro and financial forecasting applications, researchers in recent years have considered methods for forecasting that combine the information in a large number of time series. One method that has been found to be remarkably useful for out-of-sample prediction is simple averaging of the forecasts of different models. This often seems to work better than the forecasts from any one model. Bayesian Model Averaging is a closely related method that has also been found to be useful for out-of-sample prediction. This starts out with many possible models and prior beliefs about the probability that each model is the true one. It then involves computing the posterior probability that each model is the true one, and averages the forecasts from the different models, weighting them by these posterior probabilities. This is effectively a shrinkage methodology, but with shrinkage over models not just over parameters. I apply this Bayesian Model Averaging approach to pseudo-out-of-sample exchange rate forecasting over the last ten years. I find that it compares quite favorably to a driftless random walk forecast. Depending on the currency-horizon pair, the Bayesian Model Averaging forecasts sometimes do quite a bit better than the random walk benchmark (in terms of mean square prediction error), while they never do much worse. The forecasts generated by this model averaging methodology are however very close to (but not identical to) those from the random walk forecast.
- Topic:
- International Relations, Economics, and International Trade and Finance
- Political Geography:
- United States