1,300 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...

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.

Assessing Labour Market Slack for Monetary Policy

Erik Ens, Laurence Savoie-Chabot, Kurt See & Shu Lin Wee

Discount Rates, Debt Maturity, and the Fiscal Theory

Alexandre Corhay, Thilo Kind, Howard Kung & Gonzalo Morales
"Since the Great Recession, large-scale purchases of long-term government bonds have become essential for central banks around the world. There has been keen interest in understanding how these operations affect other areas. This is particularly true when countries are under fiscal pressure—from deepening deficits and surging government debt—and when short-term interest rates are near the effective lower bound. We examine how changes to monetary and fiscal policy influence government portfolio risk from debt maturity operations....

The Countercyclical Capital Buffer and International Bank Lending: Evidence from Canada

Christian Friedrich & Chen David
"The 2007–08 global financial crisis led to Basel III, a set of new regulatory measures to strengthen the resilience of the global banking system. Among these measures is the countercyclical capital buffer (CCyB), a policy tool that links the tightness of capital requirements imposed on banks to the current state of the economy and the financial system. From its introduction in 2013 until 2019, the CCyB faced a gradual tightening in various countries to slow...

Redemption Runs in Canadian Corporate Bond Funds?

Rohan Arora
Mutual funds employ a host of tools to manage redemption run risk. However, our results suggest that Canadian corporate bond funds may be vulnerable to redemption runs, especially when they are less liquid and when market volatility is high.

Potential Output in Canada: 2018 Reassessment

Andrew Agopsowicz, Dany Brouillette, Bassirou Gueye, Julien McDonald-Guimond, Jeffrey Mollins & Youngmin Park
This note summarizes the reassessment of potential output, conducted by the Bank of Canada for the April 2018 Monetary Policy Report. Overall, the profile for potential output growth is expected to remain flat at 1.8 per cent between 2018 and 2020 and 1.9 per cent in 2021. While population aging will continue to be a drag on potential output growth, this drag is expected to be offset by a pickup in trend labour productivity. This...

What Is Restraining Non-Energy Export Growth? Staff Analytical Note 2018-25 (English)

Dany Brouillette, Jose Dorich, Christopher D'Souza, Adrienne Gagnon & Claudia Godbout
This note summarizes the key findings from Bank of Canada staff analytical work examining the reasons for the recent weakness in Canadian non-energy exports. Canada steadily lost market share in US non-energy imports between 2002 and 2017, mostly reflecting continued and broad-based competitiveness losses. In addition to this evidence from the demand side, industry analysis points to supply constraints that are limiting export growth, such as physical capacity and shortages of skilled labour. Transportation bottlenecks,...

How do Canadian Corporate Bond Mutual Funds Meet Investor Redemptions?

Guillaume Ouellet Leblanc & Rohan Arora
When investors redeem their fund shares for cash, fixed-income fund managers can choose whether to draw on their liquid holdings or sell bonds in the secondary market. We analyze the liquidity-management decisions of Canadian corporate bond mutual funds, focusing on the strategies they use to meet investor redemptions.

Measuring Vulnerabilities in the Non-Financial Corporate Sector Using Industry- and Firm-Level Data

Timothy Grieder & Michal Lipsitz
Aggregate non-financial corporate debt-to-GDP has been growing rapidly in recent years and is at an all-time high. This growth began in 2011 and accelerated as the oil price shock affected the Canadian economy. In light of these developments, we use industry- and firm-level data to measure vulnerability indicators in the non-financial corporate sector. We find that developments in the oil and mining sectors have had a noticeable impact on aggregate non-financial corporate indebtedness and other...

Weakness in Non-Commodity Exports: Demand versus Supply Factors

Jose Dorich, Vadym Lepetyuk & Jonathan Swarbrick
We use the Terms-of-Trade Economic Model (ToTEM) to conduct demand- and supply-driven simulations, both of which deliver weakness in Canadian non-commodity exports relative to foreign activity in line with recent data. We then compare the predictions of the simulations with observed outcomes to shed light on the source of weakness in non-commodity exports. Our results suggest that demand factors, such as competitiveness challenges, likely play a dominant role in explaining the recent weakness in non-commodity...

Inflation Expectations and Learning about Monetary Policy

David Andolfatto, Scott Hendry & Kevin Moran
Various measures indicate that inflation expectations evolve sluggishly relative to actual inflation. In addition, they often fail conventional tests of unbiasedness. These observations are sometimes interpreted as evidence against rational expectations. The authors embed, within a standard monetary dynamic stochastic general-equilibrium model, an information friction and a learning mechanism regarding the interest-rate-targeting rule that monetary policy authorities follow. The learning mechanism enables optimizing economic agents to distinguish between transitory shocks to the policy rule and...

Guarding Against Large Policy Errors under Model Uncertainty

Gino Cateau
How can policy-makers avoid large policy errors when they are uncertain about the true model of the economy? The author discusses some recent approaches that can be used for that purpose under two alternative scenarios: (i) the policy-maker has one reference model for choosing policy but cannot take a stand as to how that model is misspecified, and (ii) the policy-maker, being uncertain about the economy's true structure, entertains multiple distinct models of the economy....

Quelques résultats empiriques relatifs à l'évolution du taux de change Canada/États-Unis

Ramdane Djoudad & David Tessier
L'objectif des auteurs est ici de voir dans quelle mesure des facteurs autres que les prix des produits de base et de l'énergie ont contribué à la dépréciation du dollar canadien depuis le début des années 1970. Les variables prises en compte à cette fin incluent entre autres les conditions budgétaires et la productivité. La méthode utilisée consiste à déterminer les variables susceptibles de jouer un rôle important, à long terme, dans l'évolution du taux...

Institutional Quality, Trade, and the Changing Distribution of World Income

Brigitte Desroches & Michael Francis
Conventional wisdom holds that institutional changes and trade liberalization are two main sources of growth in per capita income around the world. However, recent research (e.g., Rigobon and Rodrik 2004) suggests that the Frankel and Romer (1999) trade and growth finding is not robust to the inclusion of institutional quality. In this paper, the authors argue that this "trade and growth puzzle" can be explained once institutional quality is acknowledged as a determinant of the...

Information Sharing and Bargaining in Buyer-Seller Networks

Sofia Priazhkina & Frank H. Page
This paper presents a model of strategic buyer-seller networks with information exchange between sellers. Prior to engaging in bargaining with buyers, sellers can share access to buyers for a negotiated transfer. We study how this information exchange affects overall market prices, volumes and welfare, given different initial market conditions and information sharing rules. In markets with homogeneous traders, sharing always increases total trade volume. The market reaches Walrasian trade volume when there are more buyers...

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