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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:

  1. The manufacturing capacity utilization rate.
  2. The exchange rate.
  3. The average claims paid per foreclosure.

 

 

The Business Cycle1
The Link Between Overinvestments and Capacity Utilization in Manufacturing

 

Chart D-1

   
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.]

  

 

The Business Cycle2
The Link Between Overinvestments and the Value of the Dollar

 

Chart D-2

   
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.]

  

 

The Business Cycle3
The Link Between Overinvestments and Average Claims Paid Per Foreclosure

 

Chart D-3

   
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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