Description for Figure 1 - Certificate Preparation Process

The chart is a flow chart description of the Equalization certificate process, the parties involved in the certificate process and their roles during the process. It is set up in 3 columns. National Accounts Integration and Development Division (NAIDD) is labelled as the centre column and this division co-ordinates the certificate process. The outside left column is labelled as External Reviewers and the outside right column is labelled Data Supplying Divisions. The flow chart begins in the center column and the first box within the NAIDD column indicates that NAIDD requests data from DSDs using structured templates. From this point the process moves into the Data Supplying Divisions column. The first box in the DSD column shows that the DSDs prepare the data and from here the next step is then the internal quality assurance within the DSDs. From this step the data then are subject to the Director challenge and sign-off. The chart then shows that the completed templates are submitted back to NAIDD and this is illustrated with an arrow back into the centre column. At this point NAIDD conducts basic quality checks and then sends queries to DSDs based upon reviews. A bi-directional arrow between the NAIDD column and the Data Supplying Divisions column illustrates that queries and responses back to NAIDD may take place several times as the data are reviewed. The chart shows that as the certificate information is being finalized, NAIDD sends the certificate information for Work-in-Progress reviews. This is illustrated by the left column labelled External Reviewers. This movement into the External Reviewers column is labelled with a bi-directional arrow as Work-in-Progress reviews take place at different times. As these reviews are done NAIDD sends the external reviewer queries to the DSD who respond. This process continues bi-directionally until all reviews have been completed and all queries are adequately responded to. Work-in-Progress reviews that take place include: Focal point review in August, a first Department of Finance Review in September and a final Department of Finance review in November. Once all reviews have been completed and all queries responded to, the certificates are finalized and NAIDD obtains the Chief Statistician signature and finalized certificates are submitted to the Department of Finance by December 1.

Changes to the Travel Tours Index of the Consumer Price Index (CPI), effective with the September 2013 CPI

Background

The Consumer Price Index (CPI) measures the rate at which the prices of representative goods and services in a fixed consumer basket change over time. In order to accurately reflect changes in the market and in the behaviour of consumers, Statistics Canada periodically reviews and updates the concepts and methods applied to the various components of the CPI program.

The Travel Tours Index, part of the CPI, was updated with the September 2013 CPI release on October 18, 2013. The Travel Tours component accounts for 0.80% of the 2011 CPI basket by weight and belongs to the Recreation, education and reading index, which is a major component of the CPI.

Prior to this methodology review, the most popular holiday packages were priced according to travel agents’ records in three months of the year, from January to March. The index in other months carried forward the March value and did not change as no pricing was done in those months. The methodology review determined that a significant number of the most popular holiday packages change between March (which ends one collection period) and January (which begins the next collection period) for a given destination. This required a high rate of replacement of holiday packages in the pricing sample. Moreover, based on recent International Travel Survey results, it was clear that the nature of and level of expenditure on Canadians’ leisure trips abroad change significantly from season to season throughout the year.

The aims of this methodology review of the Travel Tours index were a reduction in the replacement rate during data collection and a more accurate reflection of the habits of consumers regarding the timing and nature of their holiday package trip purchases.

The Travel Tours Index Review

On October 18, 2013 with the release of the September 2013 CPI, the following changes were made to the index:

  1. Pricing of holiday packages will occur every month so that the Travel Tours index better reflects the year-round pattern of travel tours purchases.
  2. The sample of destinations was updated to better represent the most popular destinations of leisure trips purchased by Canadians. These destinations were identified using recent International Traveller Survey data (2005-2011). The destination regions  were extended from the United States, Mexico and the Caribbean to include European destinations; furthermore, two more U.S. destinations were added.
  3. The pattern of pricing was changed to better reflect the time at which Canadians actually book their travel tours. Previously, prices were collected one month and four months prior to the departure date for each destination. This pattern was used to reflect the fact that consumers usually book and pay for their holiday packages ahead of time. This general strategy will be carried forward into the new methodology, with an important modification: an examination of booking patterns has indicated that it is better to collect prices two months in advance for American and Caribbean destinations and four months in advance for European destinations and cruise packages.
  4. The outlet sample was reviewed and changed to be more representative of where consumers make their travel tour purchases. The new outlet sample is selected from Statistics Canada's Business Register (BR) from a target population of businesses classified by industry, using the North American Industry Classification System (NAICS 2012) in code 561510 (Travel agencies).
  5. The new outlet sample has increased in size. As before, an outlet sample of travel agencies is drawn from six major Canadian cities with an international airport. Holiday packages will also be priced through Internet databases to provide better coverage. For the Internet price collection, holiday packages will be selected separately from those chosen for travel agencies, allowing a much more diverse product sample to be used in the index calculation.

The updated methodology better reflects the changing consumption patterns and product characteristics of travel tours. It should be noted that the introduction of monthly pricing to a series that has previously been stationary for a large part of the year brings with it increased volatility. In particular, the indicators of change (either 1-month change or 12-month change) no longer remain at the same values for each of the months in the April to December period. Destinations and outlets are now updated more frequently. This regular update process is more effective in capturing changes to the products purchased by consumers, in a more timely fashion.

Migration Estimates - User Guide

Statistics Canada

Demography Division
Statistics Canada
demography@statcan.gc.ca

October 2013

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Introduction
Section I — The Data
Section II — The Data Tables
Section III — Glossary of Terms
Section IV — Geography

Text begins

Migration Estimates From Tax Records For Census Divisions/Census Metropolitan Areas

Introduction

This report presents migration estimates by census division (CD) and/or by census metropolitan area (CMA).  Five-year comparisons as shown on our printed standard tables enable users to see the pattern of movement by Canadians, as well as immigration and emigration flows to and from Canada. The data tables are updated on a yearly basis.  Migration estimates by CMA are available since 1992-93.

Section I — The Data

Data Source

The migration estimates are derived from a comparison of addresses from individual income tax returns for two consecutive years.  The period of reference extends from April of one year to April of the following year.  A summary of the methodology is provided later in this document.

For the most current data release in October 2013, migration data for 2011 – 2012 were derived by comparing addresses supplied on personal income tax returns filed in the spring of 2011 and 2012. 

Timeliness

Migration estimates are available by census division from 1976‑77 (and by census metropolitan area from 1992-93).  Data on international migration and on internal migration are normally available from 15 to 18 months after the income tax deadline. 

The international migration data exclude net temporary emigrants, returning emigrants and non-permanent residents who did not file an income tax return.

An Outline of the Methodology

The data developed from the taxation records are estimates of migration flows between census divisions or census metropolitan areas by gender and broad age groups (under 18, 18 to 24, 25 to 44, 45 to 64 and 65 and over).  Starting with 2011-2012 migration estimates are produced for 2011 census division boundaries For 2006-07 through 2010-11 migration, estimates are produced for 2006 census division boundaries. For 2001-02 through 2005-06 migration, estimates are produced for 2001 census division boundaries. For 1996-97 through to 2000-01, estimates are produced for 1996 census division boundaries. From 1992-93 through to 1995-96, the data were produced for 1991 census division boundaries. For the 1986‑87 through 1991-92 periods, the census division boundaries corresponded to those defined in the 1986 Census. For the years 1981-82 to 1985-86, the boundaries used are those defined in the 1981 Census and in the previous years the 1976 census boundaries are used.

Migration flows for census metropolitan areas are available since 1992-93, and the boundaries of the 26 CMAs are based on 1991 Census definitions for the period 1992-93 to 1995-96.  CMA boundaries based on the 1996 Standard Geographic Coding (SGC) were used in the creation of 1996-97 to 2000-01 estimates.  Beginning with 2001-02, CMA boundaries are based on 2001 SGC.  The CMAs of Kingston (Ontario) and Abbotsford-Mission (British Columbia) were introduced with this new SGC system. Therefore, the 2001-02 to 2005-06, migration data are available for a total of 28 CMAs. For the 2006-07 to 2010-11 period, CMA boundaries are based on 2006 SGC. The CMAs of Moncton (N.B.), Barrie (Ont.), Brandford (Ont.), Guelph (Ont.), Peterborough (Ont.), and Kelowna (B.C.) were introduced with the 2006 SGC system. Therefore, migration data for that period are available for a total of 34 CMAs.  For the 2011-12 estimates, CMA boundaries are based on 2011 SGC.  No new CMA has been introduced with the 2011 SGC therefore migration data are available for a total of 34 CMAs.

The development of these data involves four main steps:

  1. Geocoding of tax records;
  2. Estimation of non‑filing dependents of taxfilers, by age group and gender;
  3. Identification of the number, age group and gender of migrant taxfilers; and
  4. Adjustment for the population not covered by the Canada Revenue Agency Taxation system.

Step 1 ─ Geocoding

The geographic coding of census divisions and census metropolitan areas on the tax records is done primarily on the basis of the Postal Code, which is part of the mailing address.  In some cases, other pieces of information were used in place of a missing postal code.  Since the 1989 tax files, over 99% of the records could be assigned a census division code.

Step 2 ─ Estimation of Dependents

Since the source file has no direct information on the number and characteristics of non-filing dependents, this information must be imputed.  Up to the 1987-88 period, this was based on the relationship between the dollar value of the total personal exemptions claimed and the number of dependents.  A reference table was established relating an estimate of the average number of dependents by age group and gender to filers in a given age‑gender‑marital status‑total personal exemption class.  This table was produced each year using a sample file of taxfilers containing information on the exact number of dependents and their relationship to the filer in addition to the characteristics of the filer.  Other demographic information such as gender ratios and the age distributions of husbands and wives were also used to distribute dependents by age and gender.

The current system uses the estimation of taxfilers' dependents from the T1 family file (T1FF).  The family system creates families by linking all filing family members together and estimates non-filing members from information on the taxfilers' returns,Note1 based on such information as deductions/tax credits for dependents.  For example, the family system imputes a non-filing spouse wherever a filer has declared him/herself married but was not linked with a filing spouse.Note2

Step 3 ─ Migrant Taxfilers and Dependents

The main source file used contains the basic demographic and geographic information on each taxfiler (and dependent) and covers approximately 95% of the total population.  The migrant taxfilers are identified by comparing current and previous census divisions or census metropolitan areas of residence.

Taxfilers' non-filing dependents are assumed to have the same migration behaviour as that of the filer to whom they are assigned.

Step 4 ─ Coverage Correction

The final step in the estimation process is an adjustment for coverage, done by age and gender at the census division/census metropolitan area level.  Population estimates by CD/CMA are used to create coverage ratios.  For migration estimates up to 2000-01, provincial adjustment ratios were used in place of the CD/CMA ratio in the few cases where coverage was abnormally high or low,  Beginning with 2001-02 migration data, high and low coverage were identified with a new methodology and a Canadian adjustment ratio was used in place of the CD/CMA ratio. Starting with 2006-2007 migration data, adjustment ratios use the CD/CMA ratio.

The adjustment ratios are applied to the counts of out‑migrants derived in Step 3 to obtain an estimate of total migration.  The basic assumption is that the population not covered by the taxation system has the same migration rate as that covered by it.

The estimates of international migration are prorated to agree with provincial estimates provided by the Demography Division of Statistics Canada.

Data Quality

Based on a detailed evaluation of the estimates for the intercensal period of 1986-91, a number of observations can be made regarding migration estimates for Census divisions:

(a) Overall, the estimates of migration are of good quality.  It is, however, difficult to make exact comparisons to other annual estimates of migration flows at the census division level.  The estimates of net migration have been used to produce population estimates and these have been compared to the 1991 Census counts.  The average absolute difference for 1991 was 2.3%.  In 12 of 182 cases (6%)Note3 the deviation exceeded 5% and in 3 cases, the deviation exceeded 10% (this does not include Quebec census divisions).  These deviations are smaller than those obtained from other estimation methodologies and indirectly indicate the quality of the net migration data.  It has not been possible to do much evaluation of the flow data.

(B)   In addition to the estimates of migration based on tax records, Demography Division of Statistics Canada also produces estimates of interprovincial migration which are based on Child Tax Benefit records.  The concepts underlying these estimates differ from the concepts used in the tax-based estimates.  More specifically, the Child Tax Benefit data estimates monthly moves while the tax data tracks annual moves.

No comparable study has yet been done to examine the CMA coverage.

Availability of Data

Migration estimates are available by census division from 1976‑77, and by census metropolitan area from 1992-93.

For the 1976‑81 period, no preliminary migration flows between census divisions were calculated.  Adjustments were not made at the international level although evaluations indicated the estimates of international migration were too low.

For the period from 1981‑82 to 1984‑85, migration estimates from tax records were produced twice a year, the first time using a preliminary tax file from the Canada Revenue Agency (available with a 6‑9 month time delay) and the second with a more complete tax file (available with a 12‑15 month time delay).  Because the differences between the two sets of estimates were not large, beginning with the 1985‑86 estimates, only one series of estimates was produced.  The final file has been used since 1985-86.

Beginning with the 1981‑82 estimates, the data on immigration and emigration have been prorated to make them consistent with the most currently available estimates produced at the provincial level by Demography Division of Statistics Canada.

Section II — The Data Tables

Number of Tables

There are four standard data tables. The tables provide a five-year comparison of migration:

Table A:  By Province of Origin/Destination
Table B:  By Age Group
Table C:  By Type of Migration and Gender
Table D:  Flows by Census division of Origin/Destination, or by CMA/non-CMA of Origin/Destination

Note: A five-year comparison is not always possible for census divisions due to boundary changes over time.

Data Table Contents

Table A ─ By Census Division or Census Metropolitan Area of Origin and of Destination
Each page of this table highlights flows: in, out and net flows for a specific province, a specific census division (CD) or any one of the 34 census metropolitan areas (CMAs), including non-CMA areas for each province.

Provincial totals provided include intraprovincial migration.

Tables B and C ─ Age Group, Type of Migration, and Gender
Both Tables B and C list in, out and net migration for the highlighted CD or CMA for a five-year period.  Table B shows migration by age group while Table C shows migration by type (interprovincial, intraprovincial and international) and by gender.

Provincial totals provided include intraprovincial migration.

Table D ─ Flows by Census Division/Census Metropolitan Area of Origin/Destination
Table D gives details of the flows for a particular CD or CMA.  A list is given of the CDs or CMAs with which the selected CD or CMA exchanged any people.  The flows are ranked in the table by net migration.  The flows for the past five years are shown on the printed tables, though the ranking is according to the most recent period.

Section III — Glossary of Terms

Age
Is calculated as of December 31 of the reference year (i.e., tax year minus year of birth).

Census division (CD)
Group of neighbouring municipalities joined together for the purposes of regional planning and managing common services (such as police or ambulance services). These groupings are established under laws in effect in certain provinces of Canada. For example, a census division might correspond to a county, une municipalité régionale de comté or a regional district. In other provinces and the territories where laws do not provide for such areas, Statistics Canada defines equivalent areas for statistical reporting purposes in cooperation with these provinces and territories.

Census metropolitan area (CMA)
Area consisting of one or more neighbouring municipalities situated around a core. A census metropolitan area must have a total population of at least 100,000 of which 50,000 or more live in the core.

Dependent
For the purpose of these databanks, dependents are the non-filing members of a family.  We do not attempt to measure dependency in any way, but are able to identify certain non-filing family members, and include these in the total counts of people in a given area.

Emigration
Movement from an area in Canada to another country.

Gross migration flow
Sum of the number of migrants between two geographic areas.  It is obtained by adding the number of in‑migrants to the number of out‑migrants.

Index
Is a comparison of the variable for the given area with either the province (province = 100) or with Canada (Canada = 100).

Immigration
Movement to an area in Canada from another country.

In‑migration
Movement to a census division or census metropolitan area from elsewhere inside or outside Canada.

Internal migration
Movement between two census divisions or census metropolitan areas within Canada.  Internal migration is divided in two categories: interprovincial and intraprovincial migration.

International migration
Movement between an area in Canada and another country.  International migration is divided in two categories: immigration and emigration.

Interprovincial migration
Movement between census divisions or census metropolitan areas located in two different provinces.  The province of departure is the “province of origin” and the province of arrival is the “province of destination”.

Intraprovincial migration
Movement between two census divisions or census metropolitan areas located within the same province.  The CD/CMA of departure is the CD/CMA of “origin” and the CD/CMA of arrival is the CD/CMA of “destination”.

Median
Is the middle number in a group of numbers.

Migration
Movement between two geographic areas during the period covered by the estimates. Within Canada, the geographic area of reference is the census division or the census metropolitan area.  Other countries are considered as one geographic area.

Net migration
Difference between the number of in‑migrants and the number of out‑migrants.

Out‑migration
Movement out of a census division or census metropolitan area to elsewhere inside or outside Canada.

Taxfiler
Most taxfilers are people who filed a tax return for the reference year and were alive at the end of the year.  Starting with the 1993 tax year, those taxfilers who died within the tax year and who had a non-filing spouse had their income and their filing status attributed to the surviving spouse.

Section IV — Geography

The data are available for census divisions and census metropolitan areas.  The mailing address at the time of filing is the basis for the geographic information in the tables.

The following table shows the coded designators for each level of geography, as well as a brief description of each. 

Table 1
Table summary
This table displays the results of table 1 . The information is grouped by level of geography (appearing as row headers), name and description (appearing as column headers).
Level of Geography Name Description
41 Census Metropolitan Area There are 34 CMAs in the 2011 databanks:

001, St. John's, Newfoundland and Labrador
205, Halifax, Nova Scotia
305, Moncton, New Brunswick
310, Saint John, New Brunswick
408, Saguenay, Québec
421, Québec, Québec
433, Sherbrooke, Québec
442, Trois-Rivières, Québec
462, Montréal, Québec
505, Ottawa-Gatineau (Québec part)
505, Ottawa-Gatineau (Ontario part)
521, Kingston, Ontario
529, Peterborough, Ontario
532, Oshawa, Ontario
535, Toronto, Ontario
537, Hamilton, Ontario
539, St-Catharines-Niagara, Ontario
541, Kitchener-Cambridge-Waterloo, Ontario
543, Brantford, Ontario
550, Guelph, Ontario
555, London, Ontario
559, Windsor, Ontario
568, Barrie, Ontario
580, Greater Sudbury, Ontario
595, Thunder Bay, Ontario
602, Winnipeg, Manitoba
705, Regina, Saskatchewan
725, Saskatoon, Saskatchewan
825, Calgary, Alberta
835, Edmonton, Alberta
915, Kelowna, British Columbia
932, Abbotsford-Mission, British Columbia
933, Vancouver, British Columbia
935, Victoria, British Columbia
21 Census Division The 2011 databanks contain 293 Census Divisions.

Data in many forms

Statistics Canada disseminates data in a variety of forms.  In addition to publications, both standard and special tabulations are offered.  Data are available on the Internet, compact disk, diskette, computer printouts, microfiche and microfilm and magnetic tape.  Maps and other geographic reference materials are available for some types of data.  Direct online access to aggregated information is possible through CANSIM, Statistics Canada's machine-readable database and retrieval system.

How to obtain more information

Inquiries about these data and related statistics or services should be directed to:

Client Services
Demography Division
Statistics Canada
Main Building, 1st Floor
Ottawa, Ontario K1A 0T6
Telephone; (613) 951-2320
Fax: (613) 951-2307
demography@statcan.gc.ca

Advisory Services provides a wide range of services: identification of your needs, establishing sources or availability of data, consolidation and integration of data coming from different sources and development of profiles, analysis of highlights or tendencies and, finally, training on products, services, Statistics Canada concepts and also the use of statistical data.

National enquiries line: 1-800-263-1136
National telecommunications device for the hearing impaired: 1-800-363-7629
Order-only line (Canada and the United States): 1-800-267-6677
National Toll-free Fax line: 1-877-287-4369

You can also visit us on the web:  http://www.statcan.gc.ca.

Standards of service to the public

Statistics Canada is committed to serving its clients in a prompt, reliable and courteous manner and in the official language of their choice. To this end, the Agency has developed standards of service that its employees observe in serving its clients. To obtain a copy of these service standards, please contact Statistics Canada toll free at 1 800 263-1136. The service standards are also published on www.statcan.gc.ca under About Statistics Canada > Providing services to Canadians.

Notes

1. See report "Description of the Methodology Used to Create Migration Data from Tax Records" updated by Judy Reid, Small Area and Administrative Data Division: February 1998.

2. See Lucaciu, Daniela and Harris, Shelley, "Overview of T1FF Processing", SAADD: 1999.

3. Montgomery, March 1993: p 15

New Lending Services Price Index

Methodology Summary Document

1. Context

Statistics Canada is in the process of developing a comprehensive suite of services producer price indexes. As part of this effort, the Finance, Insurance and Professional Services (FIPS) section is currently developing indexes for a variety of financial services, including banking, insurance, and securities brokerage and dealing.  More indexes will be developed as current projects move into production and priorities are identified.

In an effort to explore alternative administrative data sources, FIPS has obtained and analyzed data from the Bank of Canada’s A4 New Lending Report. The analysis has shown that it is possible to create a high quality New Lending Services Price Index (NLSPI) using this data.

2. Data

The data for the New Lending Services Price Index was obtained from the Bank of Canada’s Report on New Lending as well as from the Canadian System of Macroeconomic Accounts’ Gross Domestic Product by Income and Expenditure Accounts, and Financial Market Statistics used in the preparation of the Bank of Canada Review.

The Report on New Lending is collected monthly by the Bank of Canada through a survey of all Canadian chartered banks. Each bank is required to provide data on interest ratesNote1 and funds advanced for 10 lending products by 6 interest rate term maturities as well as for the aggregate of all products and all maturities (See Appendix A). In order to calculate prices for each lending product, a reference rate (See Section 5.3) was deducted from each product`s lending rate (by bank and maturity).

The reference rate was derived from data on Financial Market Statistics used in the preparation of the Bank of Canada Review and available on CANSIM. Certain market instruments were chosen and their yields were aggregated in order to produce the reference rate.

Since the value of money is eroded over time, a deflation factor is applied to the spread. The deflation factor is derived using the implicit price index for Final Domestic Expenditure from the Canadian System of Macroeconomic Accounts’ Gross Domestic Product by Income and Expenditure Accounts.

The data set is of a high quality and it presents significant detail in terms of maturity which allows for the construction of a mixed reference rate.

Furthermore, it imposes no further burden on respondents since they are already filling out this survey for the Bank of Canada.

3. Coverage

The NLSPI collects data on newly issued loans. Therefore, it is narrower in scope than a full Banking Services Price Index (BSPI) which includes all loans and deposits as well as explicit fees.

4. Usefulness

The primary purpose of the NLSPI is to provide supplemental information to help inform the deflation of output for the National Accounts. The industry in question is Canadian System of Macroeconomic Accounts (CSMA) industry BS5221A0 Banking and Other Depository Credit Intermediation. This corresponds to North American Industry Classification System (NAICS) industry 52211, Banking and industry 52219, Other Depository Credit Intermediation.  The NLSPI covers a portion of the output contained in MPS52X002 Residential mortgage services indirectly measured (FISIM) and MPS52X003 Other loan services indirectly measured (FISIM). Those commodities cover the output generated by all of the loans contained on the banks’ balance sheets while the NLSPI covers the output of only those loans issued in the reference period.  In terms of having a smaller coverage than the product heading, the NLSPI could be considered to meet the requirements of a B-method price. Note2

In terms of calculating a fuller BSPI, the NLSPI could serve as a component of a comprehensive index that would measure prices for all bank output including outstanding loans, deposits, and explicit fees.  Since the NLSPI measures the flow of lending at a detailed level of maturity, over time this data could be used to estimate weights for loan maturities when constructing a broader BSPI.

5. Methodology

5.1. New Lending Prices

The primary activity of a bank is to transform the deposits of savers into loans for borrowers. This is called depository credit intermediation. There are a variety of functions associated with this activity such as cheque clearing, debit card services, and credit analysis. For many of these services, banks charge explicit fees such as ATM fees and wire transfer fees. Banks also earn significant income indirectly by collecting more in interest on loans then they pay on deposits. This spread between interest income and interest expense is called Financial Intermediation Services Indirectly Measured (FISIM). The NLSPI seeks to measure changes over time in the portion of this spread associated with newly issued loans.

5.2. User-Cost of Money

Prices in banking are measured using the User-Cost of Money approach. The user-cost approach defines the price of a loan as the difference between the effective rateNote3 on that loan and some reference rate plus explicit fees per dollar of loan.

plj = (rlj - rj) + slj

where plj is price for each bank l’s product, j; rlj is the interest rate for each bank l’s product, j; rj represents the reference rate, and slj represent the explicit fees.

For the purposes of the NLSPI, explicit fees are not included and we are left with simple loan margins.

plj= (rlj - rj)

Since the value of money is eroded over time, a deflation factor is applied to the spread.

This gives:

plj = (rlj - rj) * d

All variables in this equation are described above, and d is the estimated monthly value rate of the implicit price index for Final Domestic Expenditure. For a more detailed explanation of deflation see Appendix B.

5.3. Reference Rate

The reference rate that we have been discussing is defined as the theoretical opportunity cost of money. There exists no consensus, either in the literature or international practice, as to the choice of reference rate. While we have experimented with several individual reference rates as well as with a multiple reference rate approach that matches reference rates to maturities, we have opted to use a single, mixed maturity reference rate.  This method is based on the Report of the Intersecretariat Working Group on National Accounts (ISWGNA) Task Force on FISIM and the method has been reviewed by Statistics Canada’s Price Measurement Advisory Committee.

The mixed rate is constructed by taking the yields of a variety of market instruments each of which matches one of the loan maturities (See Appendix C). The yields are aggregated using the trailing 12 month funds advanced of the matching maturities as quantity weights.Note4

This brings the price calculation to:

plj = (rlj - r) * d

where plj, rlj and d remain as described above, and where r represents the mixed reference rate.

5.4. Aggregation

The NLSPI is currently produced using a commodity-based aggregation which allows for the production of a variety of sub-indexes. Although it might be possible to provide series at a more detailed level to the CSMA, we are not currently planning to publish sub-indexes.

In order to weigh the prices from the microdata level, we use derived revenues as weights. Revenues are derived by multiplying the derived prices by the funds advanced for each product at each maturity for each bank.

Appendix A
A1 Products

Section I – Interest rates – Percentages

  • To individuals:
    • Personal loan plans
    • Personal lines of credit, secured
    • Personal lines of credit, unsecured
    • Other personal
    • Residential mortgages, insured
    • Residential mortgages, uninsured
  • Total personal loans and mortgages
  • To the business sector
    • Loans to regulated non-bank financial institutions
    • Lease receivables
    • Loans to individuals and others for business purposes
    • Non-residential mortgages
  • Total selected business loans

Section II – Funds advanced – Thousands of dollars

  • To individuals:
    • Personal loan plans
    • Personal lines of credit, secured
    • Personal lines of credit, unsecured
    • Other personal
    • Residential mortgages, insured
    • Residential mortgages, uninsured
  • Total personal loans and mortgages
  • To the business sector
    • Loans to regulated non-bank financial institutions
    • Lease receivables
    • Loans to individuals and others for business purposes
    • Non-residential mortgages
  • Total selected business loans

A2 Maturities

All
Variable rate
Fixed rate <1 year
Fixed rate 1 to <3 years
Fixed rate 3 to <5 years
Fixed rate 5 to <7 years
Fixed rate 7 years and over

Appendix B
Deflation

The APR that is reported on the A4 is the interest rate banks quote to their clients. It is equal to the effective rate if and only if there is a single interest payment made annually without compounding. The user-cost approach requires the use of effective interest rates but since those are not available in the A4, we are using the APR as a proxy. In that case, it’s important to keep in mind that the APR is a function of interest income and funds advanced:

APR = (Interest Income / Funds Advanced)

The same is also true of the assets that make up the reference rates:

Yield = (Interest income / Funds advanced)

As discussed in Section 5.2, the funds advanced must be discounted to account for the decline in the purchasing power of money over time on a cumulative basis.

For the purposes of the NLSPI, we have chosen the monthly estimatedNote5 level of the implicit price index for Final Domestic Expenditure as the deflator. We then apply this value to the spreadNote6 to obtain the final price for month t:

Pt = (APRt – rt) * dt

dt = dt-1* ht

where dt = 1 in the first month. In subsequent months, dt-1 represents the previous month’s deflator, and ht is the monthly growth rate of GDI calculated as the cubic root of the quarterly growth rate.

Appendix C
Reference rate for the NLSPI

Mixed Reference Rate

The reference rate for the NLSPI is a weighted average of the yields to maturity for the market instruments listed below. The weight of each instrument is the 12-month trailing funds advanced for the corresponding term maturity. The data is obtained from CANSIM Table 176-0043.

This table displays the results of reference rate for the nlspi. The information is grouped by maturity (appearing as row headers), market rate and cansim vector (appearing as column headers).
Maturity Market Rate CANSIM Vector
Variable Rate Overnight Rate V122514
Fixed Rate <1 year 6 month Treasury Bill V122532
Fixed Rate 1 to <3 years 1-3 year Government Bonds V122558
Fixed Rate 3 to <5 years 3-5 year Government Bonds V122485
Fixed Rate 5 to <7 years 5-10 year Government Bonds V122486
Fixed Rate 7 years and over 5-10 year Government Bonds V122486

Notes:

  1. The interest rates that are provided are in the form of Annual Percentage Rates (APRs) which is the same as the effective rate only if the loan is held for exactly one year with a single interest payment without default.
  2. See Handbook on Price and Volume Measures in National Accounts, p. 30, 31.
  3. Interest Income divided by Balance of Outstanding Loans.
  4. Note that for reference year 2011; the reference rate is weighted using the fixed value of 2011 funds advanced.
  5. Since this implicit price index is only available quarterly, we take the third root of the quarterly growth rate and then multiply it by the previous month’s deflator to arrive at a cumulative monthly deflator.
  6. Deflating the funds advanced is equivalent to multiplying the spread by the monthly deflator.

New Lending Services Price Index

Methodology Summary Document

1. Context

Statistics Canada is in the process of developing a comprehensive suite of services producer price indexes. As part of this effort, the Finance, Insurance and Professional Services (FIPS) section is currently developing indexes for a variety of financial services, including banking, insurance, and securities brokerage and dealing.  More indexes will be developed as current projects move into production and priorities are identified.

In an effort to explore alternative administrative data sources, FIPS has obtained and analysed data from the Bank of Canada’s A4 New Lending Report. The analysis has shown that it is possible to create a high quality New Lending Services Price Index (NLSPI) using this data.

2. Data

The data for the New Lending Services Price Index was obtained from the Bank of Canada’s Report on New Lending as well as from the Canadian System of National Accounts’ Gross Domestic Product by Income and Expenditure Accounts, and Financial Market Statistics used in the preparation of the Bank of Canada Review.

The Report on New Lending is collected monthly by the Bank of Canada through a survey of all Canadian chartered banks. Each bank is required to provide data on interest ratesNote1 and funds advanced for 10 lending products by 6 interest rate term maturities as well as for the aggregate of all products and all maturities (See Appendix A). In order to calculate prices for each lending product, a reference rate (See section 5.3.) was deducted from each product`s lending rate (by bank and maturity).

The reference rate was derived from data on Financial Market Statistics used in the preparation of the Bank of Canada Review and available on CANSIM. Certain market instruments were chosen and their yields were aggregated in order to produce the reference rate.

Since the value of money is eroded over time, a deflation factor is applied to the spread. The deflation factor is derived using the implicit price index for Final Domestic Expenditure from the Canadian System of National Accounts’ Gross Domestic Product by Income and Expenditure Accounts.

The data set is of a high quality and it presents significant detail in terms of maturity which allows for the construction of a mixed reference rate.

Furthermore, it imposes no further burden on respondents since they are already filling out this survey for the Bank of Canada.

3. Coverage

The NLSPI collects data on newly issued loans. Therefore, it is narrower in scope than a full Banking Services Price Index (BSPI) which includes all loans and deposits as well as explicit fees.

4. Usefulness

The primary purpose of the NLSPI is to provide supplemental information to help inform the deflation of output for the National Accounts. The industry in question is Canadian System of National Accounts (CSNA) industry BS5221A0 Banking and Other Depository Credit Intermediation. This corresponds to North American Industry Classification System (NAICS) industry 52211, Banking.  The NLSPI covers a portion of the output contained in MPS520002 Residential mortgage services indirectly measured (FISIM) and MPS520003 Other loan services indirectly measured (FISIM). Those commodities cover the output generated by all of the loans contained on the banks’ balance sheets while the NLSPI covers the output of only those loans issued in the reference period.  In terms of having a smaller coverage than the product heading, the NLSPI could be considered to meet the requirements of a B-method price.Note2

In terms of calculating a fuller BSPI, the NLSPI could serve as a component of a comprehensive index that would measure prices for all bank output including outstanding loans, deposits, and explicit fees.  Since the NLSPI measures the flow of lending at a detailed level of maturity, over time this data could be used to estimate weights for loan maturities when constructing a broader BSPI.

5. Methodology

5.1. New Lending Prices

The primary activity of a bank is to transform the deposits of savers into loans for borrowers. This is called depository credit intermediation. There are a variety of functions associated with this activity such as cheque clearing, debit card services, and credit analysis. For many of these services, banks charge explicit fees such as ATM fees and wire transfer fees. Banks also earn significant income indirectly by collecting more in interest on loans then they pay on deposits. This spread between interest income and interest expense is called Financial Intermediation Services Indirectly Measured (FISIM). The NLSPI seeks to measure changes over time in the portion of this spread associated with newly issued loans.

5.2. User-Cost of Money

Prices in banking are measured using the User-Cost of Money approach. The user-cost approach defines the price of a loan as the difference between the effective rateNote3 on that loan and some reference rate plus explicit fees per dollar of loan.

plj = (rlj - rj) + slj

Where plj is price for each bank l’s product, j; rlj is the interest rate for each bank l’s product, j; rj represents the reference rate, and slj represent the explicit fees.

For the purposes of the NLSPI, explicit fees are not included and we are left with simple loan margins.

plj= (rlj - rj)

Since the value of money is eroded over time, a deflation factor is applied to the spread.

This gives:

plj = (rlj - rj) * d

All variables in this equation are described above, and d is the estimated monthly value rate of the implicit price index for Final Domestic Expenditure. For a more detailed explanation of deflation see Appendix B.

5.3. Reference Rate

The reference rate that we have been discussing is defined as the theoretical opportunity cost of money. There exists no consensus, either in the literature or international practice, as to the choice of reference rate. While we have experimented with several individual reference rates as well as with a multiple reference rate approach that matches reference rates to maturities, we have opted to use a single, mixed maturity reference rate.  This method is based on the Report of the Intersecretariat Working Group on National Accounts (ISWGNA) Task Force on FISIM and the method has been reviewed by Statistics Canada’s Price Measurement Advisory Committee.

The mixed rate is constructed by taking the yields of a variety of market instruments each of which matches one of the loan maturities (See Appendix C). The yields are aggregated using the trailing 12 month funds advanced of the matching maturities as quantity weights.Note4

This brings the price calculation to:

plj = (rlj - r) * d

Where plj, rlj and d remain as described above, and where r represents the mixed reference rate.

5.4. Aggregation

The NLSPI is currently produced using a commodity-based aggregation which allows for the production of a variety of sub-indexes. Although it might be possible to provide series at a more detailed level to the CSNA, we are not currently planning to publish sub-indexes.

In order to weigh the prices from the microdata level, we use derived revenues as weights. Revenues are derived by multiplying the derived prices by the funds advanced for each product at each maturity for each bank.

Appendix A
A1 Products

Section I – Interest rates – Percentages

  • To individuals:
    • Personal loan plans
    • Personal lines of credit, secured
    • Personal lines of credit, unsecured
    • Other personal
    • Residential mortgages, insured
    • Residential mortgages, uninsured
  • Total personal loans and mortgages
  • To the business sector
    • Loans to regulated non-bank financial institutions
    • Lease receivables
    • Loans to individuals and others for business purposes
    • Non-residential mortgages
  • Total selected business loans

Section II – Funds advanced – Thousands of dollars

  • To individuals:
    • Personal loan plans
    • Personal lines of credit, secured
    • Personal lines of credit, unsecured
    • Other personal
    • Residential mortgages, insured
    • Residential mortgages, uninsured
  • Total personal loans and mortgages
  • To the business sector
    • Loans to regulated non-bank financial institutions
    • Lease receivables
    • Loans to individuals and others for business purposes
    • Non-residential mortgages
  • Total selected business loans

A2 Maturities

All
Variable rate
Fixed rate <1 year
Fixed rate 1 to <3 years
Fixed rate 3 to <5 years
Fixed rate 5 to <7 years
Fixed rate 7 years and over

Appendix B
Deflation

The APR that is reported on the A4 is the interest rate banks quote to their clients. It is equal to the effective rate if and only if there is a single interest payment made annually without compounding. The user-cost approach requires the use of effective interest rates but since those are not available in the A4, we are using the APR as a proxy. In that case, it’s important to keep in mind that the APR is a function of interest income and funds advanced:

APR = (Interest Income / Funds Advanced)

The same is also true of the assets that make up the reference rates:

Yield = (Interest income / Funds advanced)

As discussed in section 5.2, the funds advanced must be discounted to account for the decline in the purchasing power of money over time on a cumulative basis.

For the purposes of the NLSPI, we have chosen the monthly estimated Note 5 level of the implicit price index for Final Domestic Expenditure as the deflator. We then apply this value to the spread Note 6 to obtain the final price for month t:

Pt = (APRt – rt) *dt

dt = dt-1* ht

Where dt = 1 in the first month. In subsequent months, dt-1 represents the previous month’s deflator, and ht is the monthly growth rate of GDI calculated as the cubic root of the quarterly growth rate.

Annexe C
Reference rate for the NLSPI

Mixed Reference Rate

The reference rate for the NLSPI is a weighted average of the yields to maturity for the market instruments listed below. The weight of each instrument is the 12-month trailing funds advanced for the corresponding term maturity. The data is obtained from CANSIM Table #176-0043.

This table displays the results of reference rate for the nlspi. The information is grouped by maturity (appearing as row headers), market rate and cansim vector (appearing as column headers).
Maturity Market Rate CANSIM Vector
Variable Rate Overnight Rate V122514
Fixed Rate <1 year 6 month Treasury Bill V122532
Fixed Rate 1 to <3 years 1-3 year Government Bonds V122558
Fixed Rate 3 to <5 years 3-5 year Government Bonds V122485
Fixed Rate 5 to <7 years 5-10 year Government Bonds V122486
Fixed Rate 7 years and over 5-10 year Government Bonds V122486

Notes:

  1. The interest rates that are provided are in the form of Annual Percentage Rates (APRs) which is the same as the effective rate only if the loan is held for exactly one year with a single interest payment without default.
  2. See Handbook on price and volume measures in national accounts Page 30, 31.
  3. Interest Income divided by Balance of Outstanding Loans.
  4. Note that for reference year 2011; the reference rate is weighted using the fixed value of 2011 funds advanced.
  5. Since this implicit price index is only available quarterly, we take the third root of the quarterly growth rate and then multiply it by the previous month’s deflator to arrive at a cumulative monthly deflator.
  6. Deflating the funds advanced is equivalent to multiplying the spread by the monthly deflator.