1,677 Works

Tariffs and the Exchange Rate: Evidence from Twitter

Dmitry Matveev & Francisco Ruge-Murcia
"US commercial policy during the presidency of Donald Trump led to renewed interest in the macroeconomic effects of trade tariffs. It has become common to use tariffs and other restrictions on international trade in an attempt to boost the domestic economy. One factor affecting the impact of tariffs is the response of local currency after tariffs are imposed. The effects of tariff changes can be eased or overturned if the local currency appreciates and prevents...

Are There Gains from Pooling Real-Time Oil Price Forecasts?

Christiane Baumeister, Lutz Kilian & Thomas K. Lee
The answer as to whether there are gains from pooling real-time oil price forecasts depends on the objective. The approach of combining five of the leading forecasting models with equal weights dominates the strategy of selecting one model and using it for all horizons up to two years.

Lessons from the Financial Crisis: Bank Performance and Regulatory Reform

Neville Arjani & Graydon Paulin
The financial systems of some countries fared materially better than others during the global financial crisis of 2007-09.

Sequencing Extended Monetary Policies at the Effective Lower Bound

Yang Zhang, Lena Suchanek, Jonathan Swarbrick, Joel Wagner & Tudor Schlanger
In response to the global COVID-19 pandemic, the Bank of Canada aggressively lowered its policy interest rate and provided additional easing using forward guidance and quantitative easing. In this analysis, we use simulations in the Bank of Canada’s projection model—the Terms-of-Trade Economic Model—to consider a suite of extended monetary policies (EMPs) to support the economy following the COVID-19 crisis. We focus on the implementation sequencing of three EMP options when the policy rate is at...

Chinese Monetary Policy and Text Analytics: Connecting Words and Deeds

Jeannine Bailliu, Xinfen Han, Barbara Sadaba & Mark Kruger
Chinese monetary policy is not yet well understood by the outside world. This is likely due to the complex nature of China’s monetary policy framework and the lack of independence of its central bank. The People’s Bank of China (PBOC) has multiple objectives and uses several monetary policy instruments whose importance has changed over time. This makes it challenging to infer the systematic patterns of the PBOC monetary policy from its observed behaviour. Information provided...

Capital Flows and Macroprudential Policies - A Multilateral Assessment of Effectiveness and Externalities

John Beirne & Christian Friedrich
This paper assesses the effectiveness and associated externalities that arise when macroprudential policies (MPPs) are used to manage international capital flows. Using a sample of up to 139 countries, we examine the impact of eight different MPP measures on cross-border bank flows over the period 1999-2009.

Retail Payment Innovations and Cash Usage: Accounting for Attrition Using Refreshment Samples

Heng Chen, Marie-Helene Felt & Kim Huynh
We exploit the panel dimension of the Canadian Financial Monitor (CFM) data to estimate the impact of retail payment innovations on cash usage. We estimate a semiparametric panel data model that accounts for unobserved heterogeneity and allows for general forms of non-random attrition.

Consumer Attitudes and the Epidemiology of Inflation Expectations

Michael Ehrmann, Damjan Pfajfar & Emiliano Santoro
This paper studies the formation of consumers’ inflation expectations using micro-level data from the Michigan Survey. It shows that beyond the well-established socio-economic determinants of inflation expectations such as gender, income or education, other characteristics such as the households’ financial situation and their purchasing attitudes also matter.

Understanding the Cash Demand Puzzle

Janet Hua Jiang & Enchuan Shao
We develop a model to explain a puzzling trend in cash demand in recent years: the value of bank notes in circulation as a percentage of GDP has remained stable despite decreasing cash usage at points of sale owing to competition from alternative means of payment such as credit cards.

The Effects of Government Licensing on E-commerce: Evidence from Alibaba

Ginger Zhe Jin, Zhentong Lu, Xiaolu Zhou & Chunxiao Li
How does government licensing affect selling on online platforms? We examine the impact of China’s 2015 Food Safety Law on sellers and buyers on Alibaba, the largest e-commerce platform in that country.

Forecasting Short-Term Real GDP Growth in the Euro Area and Japan Using Unrestricted MIDAS Regressions

Maxime Leboeuf & Louis Morel
In this paper, the authors develop a new tool to improve the short-term forecasting of real GDP growth in the euro area and Japan. This new tool, which uses unrestricted mixed-data sampling (U-MIDAS) regressions, allows an evaluation of the usefulness of a wide range of indicators in predicting short-term real GDP growth.

Competition in the Cryptocurrency Market

Neil Gandal & Hanna Halaburda
We analyze how network effects affect competition in the nascent cryptocurrency market. We do so by examining the changes over time in exchange rate data among cryptocurrencies.

Stressed but not Helpless: Strategic Behaviour of Banks Under Adverse Market Conditions

Grzegorz Halaj & Sofia Priazhkina
"Central banks and regulators around the world routinely assess the ability of banks to survive hypothetical stress scenarios by conducting bank stress tests. During a stress scenario—think of the financial crisis of 2008–09—we would expect banks to modify their risk exposure and react to actions their competitors take. However, standard stress-test tools do not capture bank behaviours even under extreme stress scenarios. Assumptions about bank behaviours may impact the analysis of bank resilience and regulation during a financial crisis. Our new stress-testing tool challenges these assumptions. Banks under stress can strategically change their behaviour to maximize their value for shareholders. Using confidential Canadian supervisory data, we assess whether this value-maximizing behaviour can amplify a hypothetical stress scenario. We show that during a crisis, banks comply with regulatory...

(Optimal) Monetary Policy with and without Debt

Boris Chafwehé, Rigas Oikonomou, Romanos Priftis & Lukas Vogel
How should policy be designed at high debt levels, when fiscal authorities have little room to adjust taxes? Assigning the monetary authority a role in achieving debt sustainability makes it less effective in stabilizing inflation and output.

Qualitative Field Research in Monetary Policy Making

Christopher D'Souza & Jane Voll
Many central banks conduct economic field research involving in-depth interviews with external parties. But very little is known about how this information is used and its importance in the formation of monetary policy. We address this gap in the literature through a thematic analysis of open-ended interviews with senior central bank economic and policy staff who work closely with policy decision-makers. We find that these central bankers consider information from field research programs not just...

Estimating Policy Functions in Payments Systems Using Reinforcement Learning

Pablo S. Castro, Ajit Desai, Han Du, Rodney Garratt & Francisco Rivadeneyra
We demonstrate the ability of reinforcement learning techniques to estimate the best-response functions of banks participating in high-value payments systems—a real-world strategic game of incomplete information.

Methodology for Assigning Credit Ratings to Sovereigns

Philippe Muller & Jérôme Bourque
The investment of foreign exchange reserves or other asset portfolios requires an assessment of the credit quality of investment counterparties. Traditionally, foreign exchange reserve and asset managers have relied on credit rating agencies (CRAs) as the main source for credit assessments. The Financial Stability Board issued principles to reduce reliance on CRA ratings in standards, laws and regulations, in support of financial stability. Moreover, best practices in the asset management industry suggest that investors should...

What Explains Month-End Funding Pressure in Canada?

Christopher Sutherland
Historically, the Canadian overnight repo market persistently showed signs of funding pressure around month-end periods. Both the overnight repo rate and the Bank of Canada liquidity provision tend to rise in these windows. This paper proposes three hypotheses to explain this phenomenon. First, month-end funding pressure may be caused by search frictions. Market participants place a premium on liquidity around month-end periods because of the confluence of a generalized liquidity preference, heightened month-end forecast uncertainty...

A Three‐Frequency Dynamic Factor Model for Nowcasting Canadian Provincial GDP Growth

Tony Chernis, Calista Cheung & Gabriella Velasco
This paper estimates a three‐frequency dynamic factor model for nowcasting Canadian provincial gross domestic product (GDP). Canadian provincial GDP is released by Statistics Canada on an annual basis only, with a significant lag (11 months). This necessitates a mixed-frequency approach that can process timely monthly data, the quarterly national accounts and the annual target variable. The model is estimated on a wide set of provincial, national and international data. We assess the extent to which...

Fintech: Is This Time Different? A Framework for Assessing Risks and Opportunities for Central Banks

Meyer Aaron, Francisco Rivadeneyra & Samantha Sohal
We investigate the risks and opportunities to the mandates of central banks arising from fintech developments. Fintech may affect the different areas of responsibility of central banks—mainly monetary policy and financial stability—by changing money demand and by changing the industrial organization of the financial system. We present a competitive strategy framework to help evaluate the likelihood of these changes.

Rollover Risk and the Maturity Transformation Function of Banks

Teodora Paligorova & João Santos
This paper shows that banks that rely heavily on short-term funding engage less in maturity transformation in an attempt to decrease their exposure to rollover risk. These banks shorten both the maturity of their portfolio of loans as well as the maturity of newly issued loans. We find that the loan yield curve becomes steeper with banks’ increasing use of short-term funding. The loan maturity shortening is driven by banks and affects borrowers’ financing choices...

Technology Shocks, Labour Mobility and Aggregate Fluctuations

Daniela Hauser
We provide evidence regarding the dynamic behaviour of net labour flows across U.S. states in response to a positive technology shock. Technology shocks are identified as disturbances that increase relative state productivity in the long run for 226 state pairs, encompassing 80 per cent of labour flows across U.S. states in the 1976 - 2008 period. The data suggest heterogeneous responses of both employment and net labour flows across states, conditional on a positive technology...

A Framework to Assess Vulnerabilities Arising from Household Indebtedness Using Microdata

Ramdane Djoudad
Rising levels of household indebtedness have created concerns about the vulnerabilities of households to adverse economic shocks and the impact on financial stability. To assess these risks, the author presents a formal stress-testing framework that uses microdata to simulate how various economic shocks affect the distribution of the debt-service ratio (DSR) for the household sector. Data from an Ipsos Reid Canadian Financial Monitor survey are used to construct the actual DSR distribution for households. Changes...

A Policy Model to Analyze Macroprudential Regulations and Monetary Policy

Sami Alpanda & Gino Cateau
We construct a small-open-economy, New Keynesian dynamic stochastic general-equilibrium model with real-financial linkages to analyze the effects of financial shocks and macroprudential policies on the Canadian economy. Our model has four key features. First, it allows for non-trivial interactions between the balance sheets of households, firms and banks within a unified framework. Second, it incorporates a risk-taking channel by allowing the risk appetite of investors to depend on aggregate economic activity and funding conditions. Third,...

It Hurts (Stock Prices) When Your Team Is About to Lose a Soccer Match

Michael Ehrmann & David-Jan Jansen
The end result of major sporting events has been shown to affect next-day stock returns through shifts in investor mood. By studying the soccer matches that led to the elimination of France and Italy from the 2010 FIFA World Cup, we show that mood-related pricing effects can materialize as sporting events unfold. We do this by using intraday stock prices for a firm cross-listed on the Paris and Milan stock exchanges. This strategy allows for...

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