482 Works

Search-for-Yield in Canadian Fixed-Income Mutual Funds and Monetary Policy

Sermin Gungor & Jesus Sierra
This paper investigates the effects of monetary policy on the risk-taking behavior of fixed-income mutual funds in Canada. We consider different measures of the stance of monetary policy and investigate active variation in mutual funds’ risk exposure in response to monetary policy. We find evidence in support of a systematic link between monetary conditions and intertemporal variation in the risk-taking behavior of mutual funds. Specifically, following an expansionary monetary shift, funds actively increase default-risk exposure...

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...

The Neutral Rate in Canada: 2018 Estimates

Xin Scott Chen & Jose Dorich
The neutral nominal policy rate serves as a benchmark for assessing the degree of monetary stimulus and provides a medium- to long-run anchor for the policy rate. Since quantitative measures of the neutral rate are subject to considerable uncertainty, Bank staff rely on four different approaches to estimate the Canadian neutral rate. These approaches take explicit account of domestic and global factors, the relative importance of which varies with each approach. Informed by this analysis,...

International Transmission Channels of U.S. Quantitative Easing: Evidence from Canada

Tatjana Dahlhaus, Kristina Hess & Abeer Reza
The U.S. Federal Reserve responded to the great recession by reducing policy rates to the effective lower bound. In order to provide further monetary stimulus, they subsequently conducted large-scale asset purchases, quadrupling their balance sheet in the process. We assess the international spillover effects of this quantitative easing program on the Canadian economy in a factor-augmented vector autoregression (FAVAR) framework, by considering a counterfactual scenario in which the Federal Reserve’s long-term asset holdings do not...

Do High-Frequency Financial Data Help Forecast Oil Prices? The MIDAS Touch at Work

Christiane Baumeister, Pierre Guérin & Lutz Killian
The substantial variation in the real price of oil since 2003 has renewed interest in the question of how to forecast monthly and quarterly oil prices. There also has been increased interest in the link between financial markets and oil markets, including the question of whether financial market information helps forecast the real price of oil in physical markets. An obvious advantage of financial and energy market data in forecasting oil prices is their availability...

Firm Heterogeneity, Technological Adoption, and Urbanization: Theory and Measurement

Alex Chernoff
This paper develops a model of firm heterogeneity, technological adoption, and urbanization. In the model, welfare is measured by household real income, and urbanization is measured by population density. I use the model to derive statistics that measure the effect of a new technology on productivity, welfare, and urbanization. The empirical application of the paper estimates these effects using nineteenth-century firmlevel data on mechanical steam power in the Canadian manufacturing sector, and townshiplevel population data....

Understanding Monetary Policy and its Effects: Evidence from Canadian Firms Using the Business Outlook Survey

Matthieu Verstraete & Lena Suchanek
This paper shows (i) that business sentiment, as captured by survey data, matters for monetary policy decisions in Canada, and (ii) how business perspectives are affected by monetary policy shocks. Measures of business sentiment (soft data) are shown to have systematic explanatory power for monetary policy decisions over and above typical Taylor rule variables. Stronger (weaker) survey results lead to higher (lower) policy rates over the period of study (2001–16). Moreover, we study the effects...

Adoption of a New Payment Method: Theory and Experimental Evidence

Jasmina Arifovic, John Duffy & Janet Hua Jiang
We model the introduction of a new payment method, e.g., e-money, that competes with an existing payment method, e.g., cash. The new payment method involves relatively lower per-transaction costs for both buyers and sellers, but sellers must pay a fixed fee to accept the new payment method. As a result of the network effects, our model admits two symmetric pure strategy Nash equilibria. In one equilibrium, the new payment method is not adopted and all...

Quantitative Easing and Long‐Term Yields in Small Open Economies

Antonio Diez de los Rios & Maral Shamloo
We compare the Federal Reserve’s asset purchase programs with those implemented by the Bank of England and the Swedish Riksbank, and the Swiss National Bank’s reserve expansion program. We decompose government bond yields into (i) an expectations component, (ii) a global term premium and (iii) a country-specific term premium to analyze two-day changes in 10-year yields around announcement dates. We find that, in contrast to the Federal Reserve’s asset purchases, the programs implemented in these...

Understanding the Cross‐Country Effects of US Technology Shocks

Wataru Miyamoto & Thuy Lan Nguyen
Business cycles are substantially correlated across countries. Yet most existing models are not able to generate substantial transmission through international trade. We show that the nature of such transmission depends fundamentally on the features determining the responsiveness of labor supply and labor demand to international relative prices. We augment a standard international macroeconomic model to incorporate three key features: a weak short-run wealth effect on labor supply, variable capital utilization, and imported intermediate inputs for...

Have Liquidity and Trading Activity in the Canadian Provincial Bond Market Deteriorated?

Chen Fan, Sermin Gungor, Guillaume Nolin & Jun Yang
In recent years, the liquidity in the secondary market for Canadian provincial bonds was a concern for many market participants. We find that a proxy for the bid-ask spread has deteriorated modestly since 2010. However, a proxy for price impact as well as measures of trade size, the number of trades and turnover have been stable or improved since 2010. This holds for bonds issued by different provinces and for bonds of different ages and...

Estimating the Impacts of Tariff Changes: Two Illustrative Scenarios

Karyne B. Charbonneau & Anthony Landry
We build upon new developments in the international trade literature to construct a quantitative Ricardian framework similar to Caliendo and Parro (2015) to isolate and estimate the long-run economic impacts of tariff changes. Our framework incorporates the most recent data and shows that the trade elasticities have changed considerably since the 1990s—highlighting the need to use recent data to quantitatively evaluate newly imposed and proposed tariff schedules. We apply our model and use our estimated...

The Effect of Mortgage Rate Resets on Debt: Evidence from TransUnion (Part I)

Katya Kartashova
This note studies how decreases in mortgage rates affect the behaviour of borrowers in terms of spending on durable goods and repaying debt.

A Financial Stability Analysis of Zombie Firms in Canada

Timothy Grieder & Juan Ortega
We measure the prevalence of zombie firms in Canada and assess how they could potentially affect the financial system.

Canadian Financial Stress and Macroeconomic Conditions

Thibaut Duprey
Severe disruptions in the financial markets, as observed during the 2008 global financial crisis or the COVID-19 pandemic, can impair the stability of the entire financial system and worsen macroeconomic downturns.

The Term Structures of Loss and Gain Uncertainty

Bruno Feunou, Ricardo Lopez Aliouchkin, Roméo Tedongap & Lai Xu
"We investigate the uncertainty around stock returns at different investment horizons. Since a return is either a loss or a gain, we categorize return uncertainty into these two components. Loss uncertainty is the uncertainty surrounding negative returns, and gain uncertainty is the uncertainty surrounding any future gain. Investment opportunities can be evaluated by looking at these components. Using data from a large panel of S&P 500 Index options with time to maturity ranging from 1...

The Market for Acquiring Card Payments from Small and Medium-Sized Canadian Merchants

Angelika Welte & Jozsef Molnar
This note uses industry data and a unique dataset of small and medium-sized merchants to provide insights into the acquirer-merchant market in Canada.

CBDC adoption and usage: some insights from field and laboratory experiments

Janet Hua Jiang
This note discusses insights from historical launches of new payment methods and related laboratory experiments on the potential adoption and use of a central bank digital currency in the Canadian context.

BoC–BoE Sovereign Default Database: Methodology, Assumptions and Sources

David Beers, Elliot Jones & John Walsh
Until recently, few efforts have been made to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default. To help fill this gap, the Bank of Canada (BoC) developed a comprehensive database of sovereign defaults that is posted on its website and updated in partnership with the Bank of England (BoE).

Average is Good Enough: Average-inflation Targeting and the ELB

Robert Amano, Stefano Gnocchi, Sylvain Leduc & Joel Wagner
The Great Recession and current pandemic have focused attention on the constraint on nominal interest rates from the effective lower bound. This has renewed interest in monetary policies that embed makeup strategies, such as price-level or average-inflation targeting. This paper examines the properties of average-inflation targeting in a two-agent New Keynesian (TANK) model in which a fraction of firms have adaptive expectations. We examine the optimal degree of history dependence under average-inflation targeting and find...

Survival Analysis of Bank Note Circulation: Fitness, Network Structure and Machine Learning

Diego Rojas, Juan Estrada, Kim Huynh & David T. Jacho-Chávez
"The main objective of this research is to understand bank note distribution patterns. We do this in a novel way—by looking at bank notes through the lens of big data analytics. We use data from the Bank of Canada's Currency Information Management Strategy (IMS) to study the notes themselves. We perform an exploratory analysis of the networks spanned by the bank notes’ circulation across 10 regions in Canada. The analysis focuses on how long the...

Liquidity Usage and Payment Delay Estimates of the New Canadian High Value Payments System

Francisco Rivadeneyra & Nellie Zhang
As part of modernizing its core payments infrastructure, Canada will replace the Large Value Transfer System (LVTS) with a new Real-Time Gross Settlement (RTGS) system called Lynx. An important question for policy-makers is how Lynx should be designed.

Security and convenience of a central bank digital currency

Charles M. Kahn & Francisco Rivadeneyra
An anonymous token-based central bank digital currency (CBDC) would pose certain security risks to users. These risks arise from how balances are aggregated, from their transactional use and from the competition between suppliers of aggregation solutions.

Global Commodity Markets and Rebalancing in China: The Case of Copper

Jeannine Bailliu, Doga Bilgin, Kun Mo, Kurt Niquidet & Benjamin Sawatzky
Given that China accounts for about half of global copper consumption, it is reasonable to expect that any significant change in Chinese copper consumption will have an impact on the global market. This paper examines the likely impact of the rebalancing of the Chinese economy on its copper consumption over the next decade, focusing on the relationship between the copper intensity of GDP and the share of investment in GDP. We use a panel smooth...

Changing Fortunes: Long-Termism—G-Zero, Artificial Intelligence and Debt

Stephen S. Poloz
This paper discusses three long-term forces that are acting on the global economy and their implications for companies and policy-makers: 1. the transition in geopolitics away from a global order based on international cooperation, or “deglobalization”; 2. the spread of new technology, particularly artificial intelligence, through the “fourth industrial revolution”; and 3. the steady buildup of debt—public and private—in most countries. Deglobalization leads to reduced investment and the deconstruction of global value chains, which will...

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