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Against the backdrop of an ongoing review of the inflation-targeting framework, this paper examines the real-time inflation forecasts of the Bank of Canada with the aim of identifying potential areas for improvement. Not surprisingly, the results show that errors in forecasting non-core inflation (commodity prices etc.) are found to be the largest contributors to overall inflation forecast errors. Perhaps more importantly, relatively small core inflation forecast errors appear to mask large and offsetting errors related to the output gap and the policy interest rate, partly reflecting a tendency to overestimate the neutral nominal policy rate in real time. Faced with these uncertainties, the Governing Council’s gradual approach to changing its policy settings appears to have served it well.

Inflation (Finance) --- Banks and Banking --- Inflation --- Money and Monetary Policy --- Forecasting --- Production and Operations Management --- Price Level --- Deflation --- Interest Rates: Determination, Term Structure, and Effects --- Forecasting and Other Model Applications --- Macroeconomics: Production --- Monetary Policy --- Macroeconomics --- Banking --- Economic Forecasting --- Monetary economics --- Central bank policy rate --- Economic forecasting --- Output gap --- Inflation targeting --- Prices --- Financial services --- Production --- Monetary policy --- Interest rates --- Economic theory --- Canada

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Global financial conditions are poised to tighten further as the global recovery proceeds. While monetary policy normalization should be a healthy global development as growth continues to recover in advanced economies, financial spillovers seen during the taper episode—which started with the announcement in May 2013 of possible tapering of U.S. asset purchases—hint at potential challenges for Brazil. The Fed’s communications related to normalization have improved significantly since the taper episode and, at present, a rise in Fed Funds rate in 2015 is widely anticipated by markets—arguably the most widely anticipated tightening of monetary policy in history. While Brazil could benefit from tighter global financial conditions associated with improved global prospects, bouts of heightened uncertainty about the future course of monetary policy cannot be ruled out. Thus, the correct diagnosis of the underlying reasons behind tighter global financial conditions remains crucially important for Brazil. Adverse spillovers can be mitigated by strengthening policy frameworks and fundamentals.

Banks and Banking --- Foreign Exchange --- Investments: Bonds --- Econometric and Statistical Methods: General --- Econometric Modeling: General --- Money and Interest Rates: General --- Interest Rates: Determination, Term Structure, and Effects --- General Financial Markets: General (includes Measurement and Data) --- Finance --- Currency --- Foreign exchange --- Banking --- Investment & securities --- Yield curve --- Exchange rates --- Central bank policy rate --- Sovereign bonds --- Financial services --- Financial institutions --- Interest rates --- Bonds --- United States

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Private consumption has been a key driver of growth in Brazil for more than a decade. Over this time, Brazilian consumers have benefited from a favorable policy environment, a rapid phase of development—dramatically increasing economic, financial and social inclusion— and a supportive external environment. Meanwhile, infrastructure gaps have widened and investment and productivity levels have fallen behind. The consumption-led growth model now appears to have run its course. The prospect of a period of macroeconomic adjustment presents an opportunity to adjust policy settings to ensure stronger, more balanced and sustainable growth over the medium term.

Consumption (Economics) --- Consumer demand --- Consumer spending --- Consumerism --- Spending, Consumer --- Demand (Economic theory) --- Banks and Banking --- Macroeconomics --- Macroeconomics: Consumption --- Saving --- Wealth --- Investment --- Capital --- Intangible Capital --- Capacity --- Macroeconomic Analyses of Economic Development --- Personal Income, Wealth, and Their Distributions --- Aggregate Factor Income Distribution --- Interest Rates: Determination, Term Structure, and Effects --- Finance --- Consumption --- Disposable income --- Income --- Real interest rates --- Private consumption --- National accounts --- Financial services --- Economics --- National income --- Interest rates --- Brazil

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This paper presents the first assessment domestic market integration in Brazil using the law of one price. The law of one price is tested using two panel unit root methodologies and a unique data set comprising price indices for 51 products across 11 metro-areas. We find that the law of one price holds for most tradable products and, not surprisingly, non-tradable products are found to be less likely to satisfy the law of one price. While these findings are consistent with evidence found for other countries, price convergence occurs very slowly in Brazil, suggesting relatively limited domestic market integration.

Purchasing power parity --- Markets --- Public markets --- Commerce --- Fairs --- Market towns --- Law of one price --- One price, Law of --- Parity, Purchasing power --- Foreign exchange --- Econometric models. --- Macroeconomics --- Prices, Business Fluctuations, and Cycles: Forecasting and Simulation --- Economic Integration --- Economywide Country Studies: Latin America --- Caribbean --- Price Level --- Inflation --- Deflation --- Price indexes --- Prices --- Brazil

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We find historical fiscal multipliers for Brazil around 0.5, larger than what existing literature typically identifies for the average emerging market. However, spending and public credit multipliers seem to have dropped to near zero since the global financial crisis, as the estimate for the whole sample period (1999-2014) is about ½ of that for precrisis years. By contrast, revenue multipliers have remained broadly stable. We conclude that fiscal consolidations based on expenditure and public credit retrenchment are likely to entail a modest drag on growth in the near term.

Multiplier (Economics) --- National income --- Expenditures, Public. --- Government spending policy --- Expenditures, Public --- Public spending policy --- Spending policy, Government --- Economic policy --- Finance, Public --- Full employment policies --- Unfunded mandates --- Appropriations and expenditures --- Government appropriations --- Government expenditures --- Government spending --- Public expenditures --- Public spending --- Spending, Government --- Public administration --- Net national product --- Flow of funds --- Gross national product --- Income --- Economic multiplier --- Economics --- Circular velocity of money --- Government policy --- Banks and Banking --- Macroeconomics --- Money and Monetary Policy --- Public Finance --- Fiscal Policy --- Governmental Loans, Loan Guarantees, Credits, and Grants --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- National Government Expenditures and Related Policies: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary economics --- Public finance & taxation --- Banking --- Credit --- Expenditure --- Fiscal multipliers --- State-owned banks --- Bank credit --- Money --- Fiscal policy --- Financial institutions --- Banks and banking --- Brazil