1,422 Works

A Dynamic Factor Model for Commodity Prices

Doga Bilgin & Reinhard Ellwanger
In this note, we present the Commodities Factor Model (CFM), a dynamic factor model for a large cross-section of energy and non-energy commodity prices. The model decomposes price changes in commodities into a common “global” component, a “block” component confined to subgroups of economically related commodities and an idiosyncratic price shock component. Unlike with ordinary factor models, these components have meaningful economic interpretations: the global component mostly relates to global commodity demand shocks, while the...

Do Canadian Broker-Dealers Act as Agents or Principals in Bond Trading?

Daniel Hyun, Jesse Johal & Corey Garriott
Technology, risk tolerance and regulation may influence dealers to reduce their trading as principals (using their own balance sheets for sales and purchases of securities) in favour of agency trading (matching client trades). A move toward agency trading would represent a change in the structure of Canadian bond markets and, in theory, could worsen some aspects of market liquidity. To assess the prevalence of agency trading in Canada, we use data from the Market Trade...

Social Learning and Monetary Policy at the Effective Lower Bound

Jasmina Arifovic, Alex Grimaud, isabelle salle & Gauthier Vermandel
The first contribution of this paper is to develop a model that jointly accounts for the missing disinflation in the wake of the Great Recession and the subsequently observed inflation-less recovery. The key mechanism works through heterogeneous expectations that may durably lose their anchorage to the central bank (CB)’s target and coordinate on particularly persistent below-target paths. We jointly estimate the structural and the learning parameters of the model by matching moments from both macroeconomic...

IMPACT: The Bank of Canada’s International Model for Projecting Activity

Patrick Blagrave, Claudia Godbout, Justin-Damien Guénette, René Lalonde & Nikita Perevalov
We present the structure and features of the International Model for Projecting Activity (IMPACT), a global semi-structural model used to conduct projections and policy analysis at the Bank of Canada. Major blocks of the model are developed based on the rational error correction framework of Kozicki and Tinsley (1999), which allows the model to strike a balance between theoretical structure and empirical performance. IMPACT divides the world economy into six regions: United States, the euro...

Welfare Analysis of Equilibria With and Without Early Termination Fees in the US Wireless Industry

Joseph Cullen, Nicolas Schutz & Oleksandr Shcherbakov
The elimination of long-term contracts and early termination fees (ETFs) in the US wireless industry at the end of 2015 increased monthly service fees by 2 to 5 percent. Nevertheless, consumers are clearly better off without ETFs. While firms’ revenues from ETFs vanish, their profits from monthly fees increase. As a result, the overall effect on producer profits is less clear.

Privacy in CBDC technology

Sriram Darbha & Rakesh Arora
Privacy is a key aspect of a potential central bank digital currency system. We outline different technical choices to enact various privacy models while complying with the appropriate regulations. We develop a framework to evaluate privacy models and list key risks and trade-offs in privacy design.

Designing a CBDC for universal access

John Miedema, Cyrus Minwalla, Martine Warren & Dinesh Shah
If the Bank of Canada issues a central bank digital currency, the technology should be designed for universal access.

Cash and COVID-19: The impact of the pandemic on demand for and use of cash

Heng Chen, Walter Engert, Kim Huynh, Gradon Nicholls, Mitchell Nicholson & Julia Zhu
Consumer spending declined significantly during the recent COVID-19 pandemic. This negative shock likely reduced spending across all methods of payment (cash, debit, credit, etc.). The mix of payment methods consumers use could also be affected. We study how the pandemic has influenced the demand for and use of cash. We also offer insights into the use of other payment methods, such as debit and credit cards.

Primary Dealers and the Demand for Government Debt

Jason Allen, Jakub Kastl & Milena Wittwer
"The main objectives of debt management are to raise stable and low-cost funding to meet the government’s financial needs and to maintain a well-functioning market for government securities. A challenge is determining how to sell government debt: the sale format, the choice of securities to offer and the allocation across different maturities. This paper focuses on the allocation of debt across maturities. We propose a method for identifying dependencies in the demand for securities of...

Will exchange-traded funds shape the future of bond dealing?

Rohan Arora, Jean-Sébastien Fontaine, Corey Garriott & Guillaume Ouellet Leblanc
Bond dealers have traditionally kept bonds in an inventory until clients buy them. But now, dealers have another way to access bonds for their clients: the exchange-traded fund. We discuss this new way to manage bond dealing and what it might mean for bond markets.

Strengthening Inflation Targeting: Review and Renewal Processes in Canada and Other Advanced Jurisdictions

Robert Amano, Thomas J. Carter & Lawrence L. Schembri
A growing number of advanced economies with monetary policy frameworks that involve inflation targeting have adopted formal processes of review and renewal. These allow policy-makers and other stakeholders to assess the current framework’s performance to date, explore the merits of potential alternative frameworks and reach decisions about how best to enhance design and implementation. In this paper, we argue that well-governed review and renewal processes can contribute importantly to the success of a monetary policy...

The Interplay of Financial Education, Financial Literacy, Financial Inclusion and Financial Stability: Any Lessons for the Current Big Tech Era?

Nicole Jonker & Anneke Kosse
"The effort to make financial services accessible and affordable for everyone is known as financial inclusion. Large technology firms, such as Apple, Alibaba, Amazon, Facebook, eBay, Google and Tencent, have recently started to offer financial services that include payment, insurance and loans. The entry of these so-called big techs could pose opportunities as well as challenges related to financial inclusion. On one hand, big techs have the potential to draw large numbers of people who...

Predicting Payment Migration in Canada

Anneke Kosse, Zhentong Lu & Gabriel Xerri
Developments are underway to replace Canada’s two core payment systems with three new systems. We use a discrete choice model to predict migration patterns of end-users and financial institutions for future systems and discuss their policy implications.

Cyclicality of Schooling: New Evidence from Unobserved Components Models

Barbara Sadaba, Sunčica Vujič & Sofia Maier
What is the time-varying impact of economic cycles on decisions to invest in human capital?

Canadian stock market since COVID‑19: Why a V-shaped price recovery?

Jean-Sébastien Fontaine, Guillaume Ouellet Leblanc & Ryan Shotlander
Between February 19 and March 23, 2020, the Canadian stock market plunged due to the severe economic impact of COVID-19. By the end of the summer, the stock market had already recovered a significant portion of its losses, leaving many asking if investors see the economy through rose-coloured glasses. Despite these concerns, we find that current market valuations for companies on the Toronto Stock Exchange align well, on average, with the declines in earning forecasts...

Announcing the Bankers’ Acceptance Purchase Facility: a COVID‑19 event study

Rohan Arora, Sermin Gungor, Kaetlynd McRae & Jonathan Witmer
The Bank of Canada launched the Bankers’ Acceptance Purchase Facility (BAPF) to ensure that the bankers’ acceptance (BA) market could continue to function well during the financial crisis induced by the COVID‑19 pandemic. We review the impact that the announcement of this facility had on BA yields in the secondary market. We find that BA yield spreads declined by 15 basis points on the day of the announcement and by up to 70 basis points...

Les provinces canadiennes et la convergence : une évaluation empirique

Mario Lefebvre
This paper examines whether the hypothesis of economic convergence holds for the Canadian provinces. Using data on real gross domestic product per capita and on factor productivity from 1966 to 1992, the paper shows, using two different methods, that the convergence hypothesis cannot be rejected. This evidence supports the findings of other authors who have studied convergence among Canadian provinces.

Measuring the Effectiveness of Salespeople: Evidence from a Cold-Drink Market

Haofeng Jin & Zhentong Lu
"Salespeople are widely employed in many industries. Zoltners, Sinha and Lorimer (2008) conservatively estimate that US companies spend $800 billion on salespeople each year—close to three times the amount spent on advertising. However, due to lack of field data, direct empirical evidence on the effectiveness of salespeople is scarce. We leverage a unique data set on retail sales from a leading Chinese cold-drink manufacturer and information on the firm’s salespeople assignment rule to measure the...

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...

Household financial vulnerabilities and physical climate risks

Thibaut Duprey, Colin Jones, Callie Symmers & Geneviève Vallée
Natural disasters occur more often than before, potentially exposing households to financial distress. We study the intersection between household financial vulnerabilities and severe weather events.

Are Bank Bailouts Welfare Improving?

Malik Shukayev & Alexander Ueberfeldt
"The financial sector bailouts seen during the Great Recession generated substantial opposition and controversy. We assess the welfare benefits of government-funded emergency support to the financial sector, taking into account its effects on risk-taking incentives. In our quantitative general equilibrium model, the probability of a financial crisis depends on the balance sheet choices of financial intermediaries. Those choices are influenced by capital adequacy constraints and ex ante known emergency support provisions. These policy tools interact...

The Bank of Canada's Version of the Global Economy Model (BoC-GEM)

René Lalonde & Dirk Muir
The Bank of Canada's version of the Global Economy Model (BoC-GEM) is derived from the model created at the International Monetary Fund by Douglas Laxton (IMF) and Paolo Pesenti (Federal Reserve Bank of New York and National Bureau of Economic Research). The GEM is a dynamic stochastic general-equilibrium model based on an optimizing representative-agent framework with balanced growth, and some additional features to help mimic the overlappinggenerations' class of models. Moreover, there is a concrete...

Empirical Evidence on the Cost of Adjustment and Dynamic Labour Demand

Robert Amano
In this paper the author examines whether there is significant evidence of the effect of adjustment costs on Canadian labour demand. This is an important question, as sluggish adjustment of labour demand resulting from significant adjustment costs may be one factor that could help explain some of the unemployment persistence found in Canadian data. The author uses a linear-quadratic model and attempts to estimate the relative adjustment costs of labour demand as well as its...

2013 Methods-of-Payment Survey: Sample Calibration Analysis

Kyle Vincent
Sample calibration is a procedure that utilizes sample and national-level demographic distribution information to weight survey participants. The objective of calibration is to weight the sample so that it is demographically representative of the target population. This technical report details our calibration analysis for the 2013 Methods-of-Payment survey questionnaire sample. The analysis makes use of a variety of variables, with corresponding distributions from the 2011 National Household Survey and 2012 Canadian Internet Use Survey. Our...

The Bank of Canada’s “Horse Race” of Alternative Monetary Policy Frameworks: Some Interim Results from Model Simulations

Jose Dorich, Rhys R. Mendez & Yang Zhang
Bank of Canada staff are running a “horse race” of alternative monetary policy frameworks in the lead-up to 2021 renewal of the Bank’s monetary policy framework. This paper summarizes some interim results of model simulations from their research.

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