1,422 Works

Sample Calibration of the Online CFM Survey

Marie-Helene Felt & David Laferrière
The Bank of Canada’s Currency Department has used the Canadian Financial Monitor (CFM) survey since 2009 to track Canadians’ cash usage, payment card ownership and usage, and the adoption of payment innovations. A new online CFM survey was launched in 2018. Because it uses non-probability sampling for data collection, selection bias is very likely. We outline various methods for obtaining survey weights and discuss the associated conditions necessary for these weights to eliminate selection bias....

2019 Cash Alternative Survey Results

Kim Huynh, Gradon Nicholls & Mitchell Nicholson
The role of cash in Canadians’ lives has been evolving, as innovations in digital payments have become more widely adopted over the past decade. We contribute to the Bank of Canada’s research on central bank digital currency by monitoring Canadians’ use of cash and their adoption of digital payment methods.

The Canadian corporate investment gap

Christopher D'Souza, Timothy Grieder, Daniel Hyun & Jonathan Witmer
Business investment has been lower than expected in Canada and abroad since the financial crisis of 2007–09. This corporate investment gap is mirrored in firms’ other financing decisions, as they have increased cash holdings and dividend payments and decreased issuance of debt and equity.

What do high-frequency expenditure network data reveal about spending and inflation during COVID‑19?

Kim Huynh, Helen Lao, Patrick Sabourin & Angelika Welte
The official consumer price index (CPI) inflation measure, based on a fixed basket set before the COVID 19 pandemic, may not fully reflect what consumers are currently experiencing. We partnered with Statistics Canada to construct a more representative index for the pandemic with weights based on real-time transaction and survey data.

Child Skill Production: Accounting for Parental and Market-Based Time and Goods Investments

Elizabeth Caucutt, Lance Lochner, Joseph Mullins & Youngmin Park
Can daycare replace parents’ time spent with children? We explore this by using data on how parents spend time and money on children and how this spending is related to their child’s development.

Foreign Flows and Their Effects on Government of Canada Yields

Bruno Feunou, Jean-Sébastien Fontaine, James Kyeong & Jesus Sierra
Foreign demand for Government of Canada (GoC) bonds has increased rapidly since the financial crisis. This sudden interest by foreigners in the GoC market is associated with external events, such as the implementation of quantitative easing (QE) by the Federal Reserve in 2008 and the euro crisis that began in 2010. More importantly, this foreign interest reflected Canada’s newly achieved status as a safe haven. Foreign purchases were large both by historical standards and relative...

A Barometer of Canadian Financial System Vulnerabilities

thibaut duprey & Tom Roberts
This note presents a composite indicator of Canadian financial system vulnerabilities—the Vulnerabilities Barometer. It aims to complement the Bank of Canada’s vulnerabilities assessment by adding a quantitative and synthesized perspective to the more granular (distributional) analysis presented in the Financial System Review. The Vulnerabilities Barometer for Canada is above the level reached in 2007. The current state is driven by housing market vulnerabilities and elevated household indebtedness. The oil price shock contributed to the recent...

Digitalization and Inflation: A Review of the Literature

Karyne B. Charbonneau, Alexa Evans, Subrata Sarker & lena suchanek
In the past few years, many have postulated that the possible disinflationary effects of digitalization could explain the subdued inflation in advanced economies. In this note, we review the evidence found in the literature. We look at three main channels. First, we find that changes in the prices of information and communication technology-related goods and services included in the CPI have had a negligible effect on inflation in Canada. Second, we find that, due to...

Can the Canadian International Investment Position Stabilize a Slowing Economy?

Maxime Leboeuf & Chen Fan
In this note, we find that valuation effects can act as an important stabilizer, strengthening Canada’s net external wealth when its economic outlook worsens relative to that of other countries. This is particularly true when the Canadian dollar depreciates against the US dollar and the Canadian outlook worsens compared with that of the United States. Such was the case during the 2014–15 oil price shock, where valuation effects boosted Canada’s net international investment position (NIIP)...

Redistributive Effects of a Change in the Inflation Target

Robert Amano, Thomas J. Carter & Yaz Terajima
In light of the financial crisis and its aftermath, several economists have argued that inflation-targeting central banks should reconsider the level of their inflation targets. While the appropriate level for the inflation target remains an open question, it’s important to note that any transition to a new target would entail certain costs. In this note, we consider one dimension of these costs, namely, the redistributive effects stemming from the fact that financial contracts are often...

Complementing the Credit Risk Assessment of Financial Counterparties with Market-Based Indicators

Guillaume Ouellet Leblanc & Maarten van Oordt
The Bank’s internal credit risk assessment abilities are regularly enhanced. In this note, we present a recent innovation that extends the set of market-based indicators used in the credit risk assessment of financial counterparties. These indicators supplement existing fundamental quantitative and qualitative credit risk analysis by providing a timely reading of markets’ perceptions of the credit quality of financial counterparties.

Information, Amplification and Financial Crisis

Ali Kakhbod & Toni Ahnert
We propose a parsimonious model of information choice in a global coordination game of regime change that is used to analyze debt crises, bank runs or currency attacks. A change in the publicly available information alters the uncertainty about the behavior of other investors.

Interest on Cash, Fundamental Value Process and Bubble Formation on Experimental Asset Markets

Giovanni Giusti, Janet Hua Jiang & Yiping Xu
We study the formation of price bubbles on experimental asset markets where cash earns interest. There are two main conclusions.

Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data

John Bagnall, David Bounie, Kim Huynh, Anneke Kosse, Tobias Schmidt, Scott Schuh & Helmut Stix
We measure consumers’ use of cash by harmonizing payment diary surveys from seven countries. The seven diary surveys were conducted in 2009 (Canada), 2010 (Australia), 2011 (Austria, France, Germany and the Netherlands), and 2012 (the United States).

Electronic Money and Payments: Recent Developments and Issues

Ben Fung, Miguel Molico & Gerald Stuber
The authors review recent developments in retail payments in Canada and elsewhere, with a focus on e-money products, and assess their potential public policy implications.

The Positive Case for a CBDC

Andrew Usher, Edona Reshidi, Francisco Rivadeneyra & Scott Hendry
We discuss the competition and innovation arguments for issuing a central bank digital currency (CBDC). A CBDC could be an effective competition policy tool for payments. A CBDC could also support the vibrancy of the digital economy. It could help solve market failures and foster competition and innovation in new digital payments markets.

Bank Runs, Bank Competition and Opacity

Toni Ahnert & David Martinez-Miera
"How is the stability of the financial sector affected by competition in the deposit market and by banks’ choices about the level of transparency? We propose a model in which both elements interact and influence investors’ withdrawal decisions and banks’ level of distress (that is, the probability banks will default on their debt). The model also shows how measures regulating bank competition and bank transparency affect the stability of the financial sector. Banks face a...

Monetary Policy, Trends in Real Interest Rates and Depressed Demand

Paul Beaudry & Cesaire Meh
Over the last few decades, real interest rates have trended downward in many countries. The most common explanation is that this reflects depressed demand due to demographic, technological and other real factors such as income inequality. In this paper we explore the claim that these trends may have been amplified by certain features of monetary policy. We show that when long-run asset demands by households are C-shaped in relation to real interest rates, a feature...

Networking the Yield Curve: Implications for Monetary Policy

Tatjana Dahlhaus, Julia Schaumburg & Tatevik Sekhposyan
"How do different monetary policies affect the yield curve and interact with each other? To answer this question, we introduce a novel network model for interest rate surprises of different maturities. We establish model properties and identification through simulation studies. Using the model, we implement different monetary policy scenarios: modelling simultaneous interventions in different segments of the bond market while varying the strength of forward guidance. We find that the overall effect on the yield...

An Exploration of First Nations Reserves and Access to Cash

Heng Chen, Walter Engert, Kim Huynh & Daneal O’Habib
Adequate cash distribution is one the Bank of Canada’s core interests. Canadians’ ability to access cash influences the Bank’s thinking on issuing a central bank digital currency. We provide a perspective on these issues by exploring access of First Nations reserves to cash.

Market Concentration and Uniform Pricing: Evidence from Bank Mergers

João Granja & Nuno Paixao
"In recent years there has been considerable debate about the economic impact of rising levels of market concentration across many industries. In this paper, we focus on the US deposit market. Greater market concentration is usually associated with lower deposit rates. As a result, anti-trust authorities tend to block mergers and acquisitions that could significantly increase concentration in local markets. However, we don’t find that deposit rates necessarily decrease after a merger, even in areas...

Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in Canada and the United States

Marie-Helene Felt, Fumiko Hayashi, Joanna Stavins & Angelika Welte
Although credit cards are more expensive for merchants to accept than cash or debit cards, merchants typically pass through their costs evenly to all customers. Along with consumer card rewards and banking fees, this creates cross-subsidies between payment methods. Because higher-income individuals tend to use credit cards more than those with lower incomes, our results indicate that these cross-subsidies might lead to regressive distributional effects.

The Bank of Canada COVID‑19 stringency index: measuring policy response across provinces

Calista Cheung, Jerome Lyons, Bethany Madsen, Sarah Miller & Saarah Sheikh Sheikh
Provincial governments in Canada have taken different approaches to containing the spread of COVID-19. This paper presents details on a stringency index constructed by staff at the Bank of Canada. The index follows methodology developed by the Blavatnik School of Government at the University of Oxford, which we adapt to the Canadian context to capture granular differences in policy responses across provinces. The index measures the stringency of policies related to containment restrictions and public...

Potential output and the neutral rate in Canada: 2021 update

Dany Brouillette, Guyllaume Faucher, Martin Kuncl, Austin McWhirter & Youngmin Park
We expect potential output growth to be higher than in the October 2020 reassessment. By 2024, growth will be slightly above its average growth from 2010 to 2019. We assess that the Canadian nominal neutral rate continues to lie in the range of 1.75 to 2.75 percent.

Overlooking the online world: Does mismeasurement of the digital economy explain the productivity slowdown?

Alejandra Bellatin & Stephanie Houle
Since the mid-2000s, labour productivity has slowed down in Canada despite enormous technological advances that were expected to improve it. This note investigates whether mismeasurement of the digital economy can explain this paradox.

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