4 Works

Should Central Banks Worry About Nonlinearities of their Large-Scale Macroeconomic Models?

Vadym Lepetyuk, Lilia Maliar & Serguei Maliar
How wrong could policymakers be when using linearized solutions to their macroeconomic models instead of nonlinear global solutions? This question became of much practical interest during the Great Recession and the recent zero lower bound crisis. We assess the importance of nonlinearities in a scaled-down version of the Terms of Trade Economic Model (ToTEM), the main projection and policy analysis model of the Bank of Canada. In a meticulously calibrated “baby” ToTEM model with 21...

Analyzing Default Risk and Liquidity Demand during a Financial Crisis: The Case of Canada

Jason Allen, Ali Hortaçsu & Jakub Kastl
This paper explores the reliability of using prices of credit default swap contracts (CDS) as indicators of default probabilities during the 2007/2008 financial crisis. We use data from the Canadian financial system to show that these publicly available risk measures, while indicative of initial problems of the financial system as a whole, do not seem to correspond to risks implied by the cross-sectional heterogeneity in bank behavior in short-term lending markets. Strategies in, and reliance...

Centralizing Over-the-Counter Markets?

Jason Allen & Milena Wittwer
Would a shift in trading in fixed-income markets—from over the counter (bilateral trading) to a centralized electronic platform—improve welfare? We use trade-level data on the secondary market for Government of Canada debt to answer this question.

A Q-Theory of Banks

Juliane Beganau, Saki Bigio, Jeremy Majerovitz & Matías Vieyra
"The Great Recession in 2009 forced researchers and policy-makers to rethink regulations of the financial system. There has been a renewed effort to understand the behaviour of banks, their objectives and constraints, and their role in the economy. This paper contributes to that end by studying how banks react to changes in the value of their assets (generated, for example, by defaults on their loans). We argue that it is important to distinguish between the...

Registration Year

  • 2021

Resource Types

  • Text


  • Stanford University
  • Bank of Canada
  • University of Chicago
  • Santa Clara University
  • Massachusetts Institute of Technology
  • University of California, Los Angeles
  • National Bureau of Economic Research