Front Matter

Front Matter Page

IMF Country Report No. 19/176

CANADA

SELECTED ISSUES PAPER

June 2019

This paper on Canada was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on June 5, 2019.

Copies of this report are available to the public from

International Monetary Fund Publication Services

PO Box 92780 Washington, D.C. 20090

Telephone: (202) 623–7430 Fax: (202) 623–7201

E-mail: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

© 2019 International Monetary Fund

Front Matter Page

CANADA

SELECTED ISSUES

June 5, 2019

Approved By

Western Hemisphere Department

Prepared by Jorge Alvarez, Ivo Krznar, Troy Matheson, Dan Pan (all WHD); Michal Andrle (RES); and Trevor Tombe (University of Calgary); with editorial support from Nicolas Landeta and Javier Ochoa

Contents

  • ASSESSING HOUSE PRICES IN CANADA

  • A. Introduction

  • B. Static Borrowing-Capacity Approach

  • C. Data and Assumptions

  • D. Results

  • E. Other Findings

  • F. Summary and Policy Implications

  • References

  • FIGURES

  • 1. Effect on Interest Rates on Loan-to-Income Multiple

  • 2. Observed Aggregate House Prices in Canada vs. “Attainable” House Prices

  • 3. Edmonton: Contribution of Interest and Income Using the SBC Model

  • 4. Implied Share of Debt-Service to After-Tax Median Household Income

  • 5. Closing the Valuation Gap with Stronger Income Growth

  • APPENDIX

  • I. Data and Additional Results

  • HOW TO IMPROVE INFLATION FORECASTING IN CANADA

  • A. Introduction

  • B. Data

  • C. Time Series Properties of Inflation

  • D. Bank of Canada Staff’s Inflation Forecast Errors

  • E. What Went Wrong?

  • F. The Output Gap and the Neutral Nominal Policy Rate in Real Time

  • G. Summary and Policy Messages

  • References

  • FIGURES

  • 1. Inflation

  • 2. Inflation Persistence

  • 3. Inflation Cross-Correlations

  • 4. Inflation and Expectations

  • 5. Inflation Forecast Errors and Contributions

  • 6. Historical Shock Dompositions: Inflation and Forecast Errors

  • 7. Real-Time Output Gap and Policy Rate

  • 8. Recent Estimates of Neutral Policy Rate (U.S.)

  • TABLES

  • 1. Inflation Statistics Since 2000

  • 2. Inflation Forecast Errors

  • 3. Explaining Staff’s Core Inflation Forecast Errors

  • APPENDIX

  • I. Definitions and Model

  • INTERNAL TRADE: CASE FOR LIBERALIZATION

  • A. Introduction

  • B. Interprovincial Versus International Trade

  • C. Estimating the Costs of Internal Trade Barriers: Methodology

  • D. Estimates of the Costs of Internal Trade Barriers

  • E. What are the Gains from Liberalizing Internal Trade?

  • F. Can the Federal Government Secure Free Internal Trade?

  • G. Lessons From Countries That Have Undergone Internal Trade Liberalization

  • H. Is There Public Support for Internal Trade Liberalization?

  • I. What can we Expect in the Future: From AIT to CFTA

  • J. Summary and Policy Messages

  • References

  • FIGURES

  • 1. Interprovincial and International Trade

  • 2. Real GDP Gains from Individually Liberalizing Industries

  • TABLES

  • 1. Costs of Trade Barriers by Sector

  • 2. Costs of Trade Barriers by Provinces

  • 3. Dynamics of Costs of Non-Geographic Trade Barriers

  • 4. Trade Agreements and Trade Barriers

  • 5. Trade Growth Decomposition

  • 6. Gains from Observed Trade Relative to Autarky, 2015

  • 7. Gains from Eliminating Non-Geographic Trade Barriers for Goods, 2015

  • APPENDICES

  • I. Estimating the Costs of Internal Trade Barriers

  • II. Data

  • III. Estimating the Impact of Internal Trade Barriers: the Model

  • IV. Robustness of the Results to Alternative Elasticities

Canada: Selected Issues
Author: International Monetary Fund. Western Hemisphere Dept.