APPENDIX D
The Business Cycle --
Supplementary Trends
This Appendix supplements
the previous one. The structural links between changes in the distribution of bank-money
(specifically, in the pattern of investments in commercial real estate) and three economic
variables are probed:
- The
manufacturing capacity utilization rate.
- The
exchange rate.
- The
average claims paid per foreclosure.
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The
Business Cycle1
The
Link Between Overinvestments and Capacity Utilization in Manufacturing |
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Chart D-1
Were
Deteriorations in Capacity Utilization in the Manufacturing Sector Linked to
Overinvestments in Commercial Real Estate?Increases in commercial real estate
loans, as percent of total domestic loans (arrow a), were followed by significant
decreases in the total manufacturing capacity utilization rate (arrow c). Note that the underlying long-term
trend in manufacturing capacity utilization in Canada has been downward.
Sources: Royal Bank
annual reports (loans by industry, as at September 30); Statistics Canada, Canadian
Economic Observer, Historical Statistical Supplement, 1994/95, Catalogue 11-210, July
1995 (total manufacturing capacity utilization rate).
[Copyright © 1998 by
MACROKNOW INC. All rights reserved.]
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The
Business Cycle2
The
Link Between Overinvestments and the Value of the Dollar |
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Chart D-2
Movements of
the Canadian Dollar Against the U.S. Dollar. Were they Influenced by Overinvestments in
Commercial Real Estate?Increases in commercial real estate
loans, as percent of total domestic loans (arrow a), were followed by delayed, but
significant increases in the exchange rate (Canadian dollars per U.S. dollar) (arrow c).
Sources: Royal Bank
annual reports (loans by industry, as at September 30); International Monetary Fund, International
Financial Statistics Yearbook, 1993, and International Financial Statistics,
June 1996 (exchange rate, ae series).
[Copyright © 1998 by
MACROKNOW INC. All rights reserved.]
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The
Business Cycle3
The
Link Between Overinvestments and Average Claims Paid Per Foreclosure |
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Chart D-3
Were
Deteriorations in the Average Claims Paid Per Foreclosure (NHA) Linked to Overinvestments
in Commercial Real Estate?Increases in commercial real estate
loans (arrow a) were followed by delayed, but
substantial, increases in the average claim paid per foreclosure for NHA Mortgage
Insurance in Canada (arrow c). It is interesting to note the similarity
between the time-evolution of the average claims paid per foreclosure and the
time-evolution of the exchange rate (Canadian dollars per U.S. dollar) (cf. previous Chart).
Sources: Royal Bank
annual reports (loans by industry, as at September 30); CMHC annual reports (claims paid,
NHA Mortgage Insurance in Canada), and S. Julien, private communication (number of units
foreclosed).
[Copyright © 1998 by
MACROKNOW INC. All rights reserved.]
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