Jeannine Bailliu

Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation

This paper investigates the question of whether a transition to a low-inflation environment, induced by a shift in monetary policy, results in a decline in the degree of pass-through of exchange rate movements to consumer prices. It differs from previous empirical work in its focus on the identification of changes in the inflation environment and its use of a panel-data approach. Evidence from a panel-data set of 11 industrialized countries over the period from 1977 to 2001, supports the hypothesis that exchange rate pass-through declines with a shift to a low-inflation environment brought about by a change in the monetary policy regime. More specifically, the results suggest that pass-through to import, producer, and consumer price inflation declined following the inflation stabilization that occurred in many industrialized countries in the early 1990s but did not decline following a similar episode in the 1980s. Several potential explanations for this finding are discussed, including the possibility that changes in the monetary policy regimes implemented in the 1990s were perceived as more credible than those carried out in the 1980s, and the possibility that the credibility of the new monetary policy regimes was acquired over time.

Introducing the Bank of Canada's Projection Model for the Global Economy

To complement its existing set of tools to analyze and forecast developments in the global economy, the Bank of Canada recently developed a version of the Global Projection Model (GPM) jointly with staff at the International Monetary Fund. The GPM is a highly stylized quarterly projection model for the global economy based on work by Carabenciov et al. (2008). The GPM is specifically designed to meet the need for a better tool to conduct the global projection. The model’s main strength is that it provides an internally consistent projection for the global economy, wherein a shock to any individual block of the model is transmitted to the other economies through several channels. Moreover, it enables staff to better account for changes in view from projection to projection and to analyze the general-equilibrium impact on the global economy of a number of key shocks.

How Fast Can China Grow? The Middle Kingdom’s Prospects to 2030

Given its size and importance for global commodity markets, the question of how fast the Chinese economy can grow over the medium term is an important one. This paper addresses this question by examining the evolution of the supply side of the Chinese economy over history and projecting how it will evolve over the next 15 years. Using a Cobb-Douglas production function, we decompose the growth of trend GDP into those of the capital stock, labour, human capital and total factor productivity (TFP) and then forecast trend output growth out to 2030 using a bottom-up approach based on forecasts that we build for each one of these factors. Our paper distinguishes itself from existing work in that we construct a forecast of Chinese TFP growth based on the aggregation of forecasts of its key determinants. Moreover, our analysis is based on a carefully constructed estimate of the Chinese productive capital stock and a measure of human capital – based on Chinese wage survey data – that better reflects the returns to education in China. Our results suggest that Chinese trend output growth will decelerate from around 7% currently to about 5% by 2030, and are consistent with a gradual rebalancing of the Chinese economy characterized by a decline in the investment rate.