829 Works

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...

Estimating Canada’s Effective Lower Bound

Jonathan Witmer & Jing Yang
In 2009, the Bank of Canada set its effective lower bound (ELB) at 25 basis points (bps). Given the recent experience of Sweden, Denmark, Switzerland and the euro area with negative interest rates, we examine the economics of negative interest rates and suggest that cash storage costs are the source of a negative lower bound on interest rates. European experience demonstrates that markets can adapt to challenges associated with negative interest rates. However, given uncertainty...

Low Inflation in Advanced Economies: Facts and Drivers

Sanjana Bhatnagar, Anne-Katherine Cormier, Patrisha de Leon-Manlagnit, Elise Martin, Vikram Rai, Renaud St-Cyr, Subrata Sarker & Kristina Hess
Since the global financial crisis, core inflation has been persistently below target in most advanced economies. Recently, it has weakened further in several advanced economies despite gradually diminishing slack. This note reviews recent developments in core inflation across advanced economies and identifies distinctive patterns across regions. In many advanced economies outside of the United States, the decrease in core inflation started in 2016 and was driven primarily by goods prices—most likely because of lower export...

Do Liquidity Proxies Measure Liquidity in Canadian Bond Markets?

Jean-Sébastien Fontaine, Jeffrey Gao, Jabir Sandhu & Kobe Wu
This analytical note evaluates the reliability of proxies for measuring liquidity in Canadian bond markets. We find that price-impact and bid-ask proxies paint a similar picture of evolving liquidity conditions to that obtained from richer measures of liquidity for benchmark Government of Canada bonds. In addition, we find that these proxies may be used with confidence to measure liquidity for bonds that transact much less frequently than benchmark bonds when the maturity of the bond...

Network Analysis and Canada's Large Value Transfer System

Lana Embree & Tom Roberts
Analysis of the characteristics and structure of a network of financial institutions can provide insight into the complex relationships and interdependencies that exist in a payment, clearing, and settlement system (PCSS), and allow an intuitive understanding of the PCSS's efficiency, stability, and resiliency. The authors review the literature related to the PCSS network and describe the daily and intraday network structure of payment activity in the Large Value Transfer System (LVTS), which is an integral...

The Impact of Sovereign Wealth Funds on International Financial Stability

Tamara Gomes
Over the recent period, many emerging-market economies and commodity-exporting nations have experienced unprecedented growth and accumulated substantial amounts of foreign exchange reserves. The management of these foreign reserves has led to the emergence of important financial actors: sovereign wealth funds (SWFs). While SWFs have existed in one form or another since the 1950s, they have recently risen in prominence and been exposed to public scrutiny and debate. The author outlines their possible impact on international...

The Power of Helicopter Money Revisited: A New Keynesian Perspective

Thomas J. Carter & Rhys R. Mendes
"We analyze money financing of fiscal transfers (helicopter money) in two simple New Keynesian models: a “textbook” model in which all money is non-interest-bearing (e.g., all money is currency), and a more realistic model with interest-bearing reserves. In the textbook model with only non-interest-bearing money, we find the following: A money-financed fiscal expansion can be more stimulative than a debt-financed fiscal expansion of equal magnitude. However, the extra stimulus requires that the central bank abandon...

Identifying Consumer-Welfare Changes when Online Search Platforms Change Their List of Search Results

Ryan Martin
"Online shoppers are guided by search platforms: consumers type a search phrase into the platform’s query box, and the platform chooses how products appear in response. While search platforms may choose responses that help consumers find products more efficiently, they may also have incentives to mislead consumers. For example, search platforms may organize responses to favor their own products over third-party products that better suit consumer needs. This paper uses a search-platform experiment to determine...

Optimal Taxation in Asset Markets with Adverse Selection

Mohammad Davoodalhosseini
"Consider markets for assets traded over the counter such as mortgage-backed securities and corporate bonds. Sellers in these markets may have more information on the value of their assets and their liquidity needs than buyers do. Also, sellers and buyers must search for trade partners, which is time-consuming and costly. During the 2007–09 financial crisis, activity in some of these markets declined to close to zero, and governments and central banks undertook various policies to...

Learning, Equilibrium Trend, Cycle, and Spread in Bond Yields

Guihai Zhao
"Given that the stochastic discount factor (SDF) from any equilibrium model has direct implications for yield curves, the historical dynamics of the US Treasury yield curve should tell us what a good SDF should look like from a historical perspective. Some key features in the US Treasury bond yields—the trends in the long-term yields, business-cycle movements in the short-term yields and level shifts in the yield spreads—pose serious challenges to existing equilibrium asset pricing models....

A Simple Method for Extracting the Probability of Default from American Put Option Prices

Bo Young Chang & Greg Orosi
A put option is a financial contract that gives the holder the right to sell an asset at a specific price by (or at) a specific date. A put option can therefore provide its holder insurance against a large drop in the stock price. This makes the prices of put options an ideal source of information for a market-based measure of the probability of a firm’s default.

Endogenous Time Variation in Vector Autoregressions

Danilo Leiva-Leon & Luis Henrique Uzeda Garcia
We introduce a new class of time-varying parameter vector autoregressions (TVP-VARs) where the identified structural innovations are allowed to influence — contemporaneously and with a lag — the dynamics of the intercept and autoregressive coefficients in these models. An estimation algorithm and a parametrization conducive to model comparison are also provided. We apply our framework to the US economy. Scenario analysis suggests that the effects of monetary policy on economic activity are larger and more...

Dynamic Competition in Negotiated Price Markets

Jason Allen & Shaoteng Li
"In many credit markets, prices are negotiated repeatedly. The final mortgage rate, for example, is rarely the posted price, but something that borrowers and lenders have bargained over. If borrowers are not satisfied with the rates their lenders propose, they need to search for and negotiate better offers. Borrowers often find it costly and inconvenient to switch lenders. The search and switching costs give incumbent lenders a clear advantage, allowing them to charge relatively high...

Monetary Policy Independence and the Strength of the Global Financial Cycle

Christian Friedrich, Pierre Guérin & Danilo Leiva-Leon
We propose a new strength measure of the global financial cycle by estimating a regime-switching factor model on cross-border equity flows for 61 countries. We then assess how the strength of the global financial cycle affects monetary policy independence, which is defined as the response of central banks' policy interest rates to exogenous changes in inflation.

Monetary Policy Implementation and Payment System Modernization

Jonathan Witmer
"Canada plans to adopt a retail payment system to allow Canadians to pay in real time (or near real time) 24 hours a day, 7 days a week. However, the traditional model for setting the overnight interest rate does not operate 24/7. In this paper, we adapt the traditional model to include paying after hours when participants do not have access to central bank lending and deposit facilities. If they do not have access to...

The potential effect of a central bank digital currency on deposit funding in Canada

Alejandro García, Bena Lands, Xuezhi Liu & Joshua Slive
A retail central bank digital currency denominated in Canadian dollars could, in theory, create competition for bank deposit funding.

Why Fixed Costs Matter for Proof-of-Work Based Cryptocurrencies

Rod Garratt & Maarten van Oordt
"Ensuring that the record of Bitcoin transactions is secure uses a lot of computational power. Miners, who supply this power to the Bitcoin network, earn transaction fees and new bitcoins. Ultimately, though, bitcoin miners will earn only fees as the number of new bitcoins slowly declines to zero. As mining rewards wane, some experts say that Bitcoin will become vulnerable to attacks. Will Bitcoin transactions remain secure in the future? Our analysis focuses on the...

Non-competing Data Intermediaries

Shota Ichihashi
I study a model of competing data intermediaries (e.g., online platforms and data brokers) that collect personal data from consumers and sell it to downstream firms. Competition in this market has a limited impact in terms of benefits to consumers: If intermediaries offer high compensation for their data, then consumers may share this data with multiple intermediaries, and this lowers its downstream price and hurts intermediaries. As intermediaries anticipate this problem, they offer low compensation...

Monetary Policy and Cross-Border Interbank Market Fragmentation: Lessons from the Crisis

Tobias Blattner & Jonathan Swarbrick
We present a two-country model featuring risky lending and cross-border interbank market frictions. We find that (i) the strength of the financial accelerator, when applied to banks operating under uncertainty in an interbank market, will critically depend on the economic and financial structure of the economy; (ii) adverse shocks to the real economy can be the source of banking crisis, causing an increase in interbank funding costs, aggravating the initial shock; and (iii) asset purchases...

The New Benchmark for Forecasts of the Real Price of Crude Oil

Amor Aniss Benmoussa, Reinhard Ellwanger & Stephen Snudden
How can we assess the quality of a forecast? We propose a new benchmark to evaluate forecasts of temporally aggregated series and show that the real price of oil is more difficult to predict than we thought.

Forward Guidance and Expectation Formation: A Narrative Approach

Christopher Sutherland
"Forward guidance is a central bank statement that provides direct information about the probable state of monetary policy in the future. Its purpose is to influence interest rate expectations. But how exactly does it do so?   To study this issue, I construct central bank data that includes forward guidance and its attributes, central bank projections and quantitative easing, which I then combine with survey data.   I find that, in response to a change in forward...

On Causal Networks of Financial Firms: Structural Identification via Non-parametric Heteroskedasticity

Ruben Hipp
Various business interactions of banks create a network of hidden relationships, which cannot be directly inferred from the correlation of bank stock returns. Without causality, it remains unclear how policy interventions change the network. Thus, this paper aims to find the causal network as anticipated by investors.

The Impacts of Minimum Wage Increases on the Canadian Economy

Dany Brouillette, Daniel Gao, Olivier Gervais & Calista Cheung
This note reviews the channels through which scheduled minimum wage increases over the coming years may affect Canadian economic activity and inflation and assesses their macroeconomic impacts. From reduced-form estimates of direct minimum wage pass-through, we find that consumer price index (CPI) inflation could be boosted by about 0.1 percentage point (pp) on average in 2018. A structural general equilibrium simulation suggests that minimum wage increases would reduce the level of gross domestic product by...

How to Manage Macroeconomic and Financial Stability Risks: A New Framework

Thibaut Duprey & Alexander Ueberfeldt
Financial system vulnerabilities increase the downside risk to future GDP growth. Macroprudential tightening significantly reduces financial stability risks associated with vulnerabilities. Monetary policy faces a trade-off between financial stability and macroeconomic risks.

Registration Year

  • 2021
  • 2020

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  • Text


  • Bank of Canada
  • Bank of England
  • Université Laval
  • European Central Bank
  • University of Michigan–Ann Arbor
  • University of Wisconsin–Madison
  • De Nederlandsche Bank
  • Federal Reserve Bank of New York
  • HEC Montréal
  • University of Quebec at Montreal