### Vertical Bargaining and Obfuscation

Edona Reshidi
Firms often take actions that make it more difficult for consumers to gather information about the prices of products. These practices are widespread in many markets—by both the retailers that sell directly to consumers and, often, by product manufacturers. For instance, manufacturers can obscure prices by imposing different restrictions that limit the information about prices available to consumers or by producing several similar models of their products. We analyze price obscuring practices in markets where...

### A Horse Race of Alternative Monetary Policy Regimes Under Bounded Rationality

Joel Wagner, Tudor Schlanger & Yang Zhang
We introduce bounded rationality, along the lines of Gabaix (2020), in a canonical New Keynesian model calibrated to match Canadian macroeconomic data since Canada’s adoption of inflation targeting. We use the model to provide a quantitative assessment of the macroeconomic impact of flexible inflation targeting and some alternative monetary policy regimes. These alternative monetary policy regimes are average-inflation targeting, price-level targeting and nominal gross domestic product level targeting. We consider these regimes’ performance with and...

### Dynamic Privacy Choices

Shota Ichihashi
Imagine a consumer using a social media service. They use the application to read news or posts from friends. At the same time, the social media app learns about the consumer by analyzing their profile and monitoring their browsing habits. The more actively the consumer uses the service, the more data the app can collect, which often means a better experience for the consumer and higher revenue for the service. The consumer faces a trade-off:...

### Macroeconomic Predictions Using Payments Data and Machine Learning

James Chapman & Ajit Desai
Monitoring and predicting the economy’s short-term dynamics are vital in economic decision making. However, major economic indicators are released with a substantial delay, and policy-makers must therefore rely on sophisticated models to accurately estimate them. Consumers are increasingly adopting electronic payment methods—a trend that accelerated dramatically during the COVID-19 pandemic. The vast amounts of high-frequency data generated by electronic payments are available almost in real time. And thanks to recent advances in artificial intelligence and...

### What Drives Bitcoin Fees? Using Segwit to Assess Bitcoin's Long-Run Sustainability

Coline Brown, Jonathan Chiu & Thorsten Koeppl
"Bitcoin is a decentralized payment system: a central institution to verify and settle transactions does not exist. What drives the transaction fees in this system? Can it remain tamper proof in the long run? We develop an empirical model to study how the demand for bitcoin influences transaction fees. To identify supply and demand effects, we analyze two types of events—two rapid price increases since late 2017 and the introduction of a new feature called...

### Housing demand in Canada: A novel approach to classifying mortgaged homebuyers

Mikael Khan
We introduce a novel approach to categorize mortgaged homebuyers into first-time homebuyers, repeat homebuyers and investors. We show how these groups contribute to activity in Canadian housing markets, and we analyze the differences in their demographic and financial characteristics.

### Central Bank Digital Currency and Banking: Macroeconomic Benefits of a Cash-Like Design

Jonathan Chiu & Seyed Mohammadreza Davoodalhosseini
"Many central banks are contemplating issuing a central bank digital currency (CBDC). A CBDC would have implications for payments, banking and, more broadly, total demand and supply in the economy. Considering these effects, should the central bank issue a CBDC? And if so, should the CBDC be more like cash or bank deposits?   To answer these questions, we theoretically and quantitatively assess the effects of a CBDC on consumption, banking and welfare. Our model introduces new general equilibrium linkages across different types of retail transactions (including cash, deposits and credit) as well as a novel feedback effect from...

### Predicting the Demand for Central Bank Digital Currency: A Structural Analysis with Survey Data

Jiaqi Li
"Many central banks are considering whether to issue a central bank digital currency (CBDC), which would allow people to have an account at the central bank itself. To inform this decision, policy-makers are interested in knowing how much of a CBDC people would hold and what design it should have.  This paper predicts Canadian households’ potential holdings of a CBDC and how different design features of a CBDC would affect their potential holdings. I view...

### How well can large banks in Canada withstand a severe economic downturn?

Andisheh Danaee, Harsimran Grewal, Bradley Howell, Guillaume Ouellet Leblanc , Xuezhi , Mayur Patel & Xiangjin Shen
We examine the potential impacts of a severe economic shock on the resilience of major banks in Canada. We find these banks would suffer significant financial losses but nevertheless remain resilient. This underscores the role well-capitalized banks and sound underwriting practices play in supporting economic activity in a downturn.

### Identifying Financially Remote First Nations Reserves

Heng Chen, Walter Engert, Kim Huynh & Daneal O’Habib
Chen et al. (2021) show that almost one-third of First Nations band offices in Canada are within 1 kilometre (km) of an automated banking machine (ABM) or financial institution (FI) branch and more than half are within 5 km. Further, over three-quarters of band offices are within 20 km of an ABM or FI branch and almost 90% are within 50 km. We focus on 49 First Nations locations that are more than 100 km...

### Transmission of Cyber Risk Through the Canadian Wholesale Payments System

Anneke Kosse & Zhentong Lu
In response to growing concerns about cyber and other operational risks—such as those related to climate change—international organizations, central banks and private sector entities have taken collaborative actions to increase the operational and data resilience of financial institutions and financial market infrastructures, including payment systems. In Canada, the Bank of Canada has established and leads the Canadian Financial Sector Resiliency Group and the Resilience of Wholesale Payments Systems (RWPS) initiative, which both offer a forum...

### Potential netting benefits from expanded central clearing in Canada’s fixed-income market

Jessie Chen, Johannes Chen, Shamarthi Ghosh, Manu Pandey & Adrian Walton

### Cash and COVID-19: What happened in 2021

Heng Chen, Walter Engert, Kim Huynh, Daneal O’Habib, Joy Wu & Julia Zhu
We provide an update on the impact the COVID-19 pandemic on the demand for cash and the use of methods of payment based on data from the Bank Note Distribution System and from consumer surveys conducted in April and August 2021. Our key findings are as follows: Cash in circulation remained high throughout 2021, driven mainly by demand for large-denomination notes. Canadians’ holdings of cash on hand in April (median $70) and August (median$80)...

### Weather the Storms? Hurricanes, Technology and Oil Production

Johan Brannlund, Geoffrey Dunbar, Reinhard Ellwanger & Matthew Krutkiewicz
Do technological improvements mitigate the potential damages from extreme weather events? We address this question using oil production and hurricane data from the Gulf of Mexico. We show that hurricane activity lowers well production and that stronger storms have larger impacts that persist for months after impact. Hurricanes also significantly increase the probability that oil assets are stranded, particularly when the hurricanes pass within 50km of an oil rig’s location. Regulations enacted in 1980 that...

Tony Chernis, Chris D’Souza, Kevin MacLean, Tasha Reader, Joshua Slive & Farrukh Suvankulov
The Business Leaders’ Pulse is a new online survey conducted each month. It is designed to provide timely and flexible input into the Bank of Canada’s monetary policy decision making while also creating a platform to analyze business conditions and uncertainty. Since May 2021, the Bank has been reaching out to leaders of almost all types of businesses across the country with this short questionnaire inquiring about their sales and employment growth expectations, the risks...

### Looking Through Supply Shocks versus Controlling Inflation Expectations: Understanding the Central Bank Dilemma

Paul Beaudry, Thomas J. Carter & Amartya Lahiri
Central banks in most advanced economies have reacted similarly to the increase in inflation that started in 2021. They initially looked through the rising inflation by leaving monetary policy relatively unchanged. Then, after inflation continued to increase, central banks pivoted by quickly tightening monetary policy. The pivot was explained, at least in part, as aiming to anchor drifting inflation expectations. Why might central banks want to look through supply-driven inflation sometimes and pivot away at...

### Stagflation and Topsy-Turvy Capital Flows

Julien Bengui & Louphou Coulibaly
Are unregulated capital flows excessive during a stagflation episode? We argue that they likely are, owing to a macroeconomic externality operating through the economy’s supply side. Inflows raise domestic wages through a wealth effect on labor supply and cause unwelcome upward pressure on marginal costs in countries where monetary policy is trying to drive down costs to stabilize inflation. Yet market forces are likely to generate such inflows. Optimal capital flow management instead requires net...

### Canada’s Beveridge curve and the outlook for the labour market

Alexander Lam
Canada’s labour market is tight but beginning to ease. Unemployment will likely rise in turn, but the economy can avoid a recessionary surge given current conditions. Higher unemployment would nonetheless be material, especially for those directly impacted.

### Stablecoins and Their Risks to Financial Stability

Cameron MacDonald & Laura Zhao
The market for fiat-referenced cryptoassets, commonly known as stablecoins, has expanded rapidly in recent years alongside the growth of the cryptoasset ecosystem. In fact, the market capitalization of stablecoins increased by more than 30 times since the beginning of 2020. What risks could stablecoins pose to the financial system? We examine price stabilization mechanisms of stablecoins as well as the current and potential use cases of stablecoins. We then analyze the risks stemming from both....

### Cash, COVID-19 and the Prospects for a Canadian Digital Dollar

Walter Engert & Kim Huynh
We provide an analysis of cash trends in Canada before and during the COVID-19 pandemic. Focusing on the pandemic period, we explore the implications on demand for, use of and access to cash. We find that cash demand has been strong pre-pandemic and increased sharply during the pandemic. While cash use fell initially due to the decreased number of in-person shopping opportunities, it recovered as containment measures eased. We explore the potential two scenarios for...

### BoC–BoE Sovereign Default Database: What’s new in 2022?

David Beers, Elliot Jones, Karim McDaniels & Zacharie Quiviger

### Comparison of Bayesian and Sample Theory Parametric and Semiparametric Binary Response Models

Xiangjin Shen , Iskander Karibzhanov, Hiroki Tsurumi & Shiliang Li
Studies have broadly applied binary response models as the foundation for various models—such as tree analysis, survey analysis and risk assessment. This paper proposes a Bayesian semiparametric binary response model and compares it with sample theory semiparametric and other parametric binary response models. For semiparametric models, studies that compare the impact of regular and optimal bandwidth in estimations of kernel density made through a Bayesian Markov Chain Monte Carlo algorithm are normally constrained. This is...

### Analyzing the house price boom in the suburbs of Canada’s major cities during the pandemic

Louis Morel

Sarah Burkinshaw, Yaz Terajima & Carolyn A. Wilkins
Concerns over rising inequality have heightened in the years following the 2007–09 global financial crisis and, more recently, with the COVID-19 pandemic. This staff discussion paper reviews the historical facts regarding income inequality in Canada, comparing Canada with the United States and reviewing briefly what the literature says about the most likely drivers of the rise in inequality. Data show that income inequality in Canada increased substantially during the 1980s and first half of the...

### Nonparametric Identification of Incomplete Information Discrete Games with Non-equilibrium Behaviors

Erhao Xie
In the literature that estimates discrete games with incomplete information, researchers usually impose two assumptions. First, either the payoff function or the distribution of private information or both are restricted to follow some parametric functional forms. Second, players’ behaviors are assumed to be consistent with the Bayesian Nash equilibrium. This paper jointly relaxes both assumptions. The framework non-parametrically specifies both the payoff function and the distribution of private information. In addition, each player’s belief about...

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#### Affiliations

91
• Queen's University
3
• National Bureau of Economic Research
3
• Princeton University
2