1,420 Works

Understanding Productivity: A Review of Recent Technical Research

Richard Dion & Robert Fay
The authors provide an extensive review of the rapidly expanding research on productivity, both at the macro and micro levels. They focus primarily on papers written about Canada, but also draw on selected studies from other countries, especially the United States, where such work sheds important light on particular aspects of productivity growth. The authors extract the key results of the studies and signal important methodological features that underpin those results. They also identify areas...

Small and smaller: How the economic outlook of small firms relates to size

Christopher D'Souza, James Fudurich & Farrukh Suvankulov
Firms with fewer than 100 workers employ about 65 percent of the total labour force in Canada. An online survey experiment was conducted with firms of this size in Canada in 2018–19. We compare the responses of small and micro firms to explore how their characteristics and economic outlooks relate to their size.

The Impact of Market Timing on Canadian and U.S. Firms' Capital Structure

Zhaoxia Xu
This paper studies the impact of market timing on Canadian firms' capital structure and makes a comparison with U.S. firms. There is no evidence that market timing affects Canadian firms' capital structure in the same manner as it affects their U.S. counterparts. The effect of past equity issues on Canadian firms' capital structure is transitory. Canadian firms adjust at a faster rate toward the leverage target than U.S. firms. These results challenge the generality of...

Characterizing Canada’s Export Sector by Industry: A Supply-Side Perspective

Taylor Webley
This note examines supply-side trends in Canadian non-energy industries and their implications for export performance. Between 2002 and 2016, capital stocks and total labour input declined in many industries that export non-energy goods. These soft trends in the factors of production have likely contributed to the decline in non-energy exports in about half of the goods industries analyzed in this note. On the other hand, Canada’s service sector has consistently increased its capital stock, workforce...

Decomposing Canada’s Market Shares: An Update

Nicholas Labelle
Building on the shift-share analysis of Barnett and Charbonneau (2015), this note decomposes Canada’s market shares in the United States, Europe and China for imports of non-energy goods into competitiveness, preference shifts and an interaction term. We find that, despite the depreciation of the dollar, Canada continued to lose market share over 2014–17 (around 0.4 percentage points lost per year on average over four years). Competitiveness losses are widespread among sectors and spread out over...

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

Chen Fan, Sermin Gungor, Guillaume Nolin & Jun Yang
Since 2010, the liquidity of corporate bonds has improved on average, while their trading activity has remained stable. We find that the liquidity and trading activity of riskier bonds or bonds issued by firms in different sectors have been stable. However, the liquidity and trading activity of bonds issued by banks have improved. We observe short-lived episodes of deterioration in liquidity and trading activity.

Bond Funds and Fixed-Income Market Liquidity: A Stress-Testing Approach

Rohan Arora, Guillaume Bédard-Pagé, Guillaume Ouellet Leblanc & Ryan Shotlander
This report provides a detailed technical description of a stress test model for investment funds called Ceto.

Disaggregating Household Sensitivity to Monetary Policy by Expenditure Category

Tony Chernis & Corinne Luu
Because the Bank of Canada has started withdrawing monetary stimulus, monitoring the transmission of these changes to monetary policy will be important. Subcomponents of consumption and housing will likely respond differently to a monetary policy tightening, both in terms of the aggregate effect and timing. These differences may be informative for monitoring household responsiveness to, and tracking the transmission of, changes to monetary policy. The authors therefore estimate an empirical model to measure the effects...

Introducing a Systematic Measure of Idiosyncratic Prices

Madigan Dockrill & Laurence Savoie-Chabot
There is a risk that Bank of Canada staff may inadvertently be biased when analyzing inflation: when inflation surprises on the downside, staff might emphasize negative idiosyncratic factors. When inflation surprises on the upside, staff might emphasize the positive idiosyncratic factors. The goal of this paper is to create a systematic measure of idiosyncratic prices (SMIP) that would provide an unbiased evaluation of temporary factors in Canadian consumer price index (CPI) inflation. SMIP considers CPI...

The Impact of Recent Policy Changes on the Canadian Mortgage Market

Olga Bilyk & Maria teNyenhuis
Recent policy changes are having a clear impact on the mortgage market. The number of new, highly indebted borrowers has fallen, and overall mortgage activity has slowed significantly.

Markets Look Beyond the Headline

Bruno Feunou, James Kyeong & Raisa Leiderman
Many reports and analyses interpret the release of new economic data based on the headline surprise—for instance, total inflation, real GDP growth and the unemployment rate. However, we find that headline news alone cannot adequately explain the responses of market prices to new information. Rather, market prices react more strongly, on average, to non-headline news such as the composition of GDP growth, quality of jobs created and revisions to past data. Thus, tracking the impact...

Does US or Canadian Macro News Drive Canadian Bond Yields?

Bruno Feunou, Rodrigo Sekkel & Morvan Nongni Donfack
We show that a large share of low-frequency (quarterly) movements in Canadian government bond yields can be explained by macroeconomic news, even though high-frequency (daily) changes are driven by other shocks. Furthermore, we show that US macro news—not domestic news— explains most of the quarterly variation in Canadian bond yields.

Explaining Unusual Cash Patterns in 2018

Walter Engert, Ben Fung, Jozsef Molnar & Gradon Nicholls
There was an unusually large decline of bank notes in circulation in October 2018. Some have argued that this was due to the legalization of cannabis in Canada in mid-October.

Assessing the Resilience of the Canadian Banking System

Charles Gaa, Xuezhi Liu, Cameron MacDonald & Xiangjin Shen
The stability of the Canadian financial system, as well as its ability to support the Canadian economy, depends on the ability of financial institutions to absorb and manage major shocks. This is especially true for large banks, which perform services essential to the Canadian economy.

The Neutral Rate in Canada: 2019 Update

Thomas J. Carter, Xin Scott Chen & José Dorich
This note provides an update on Bank of Canada staff’s assessment of the Canadian neutral rate. The neutral rate is the policy rate needed to keep output at its potential level and inflation at target once the effects of any cyclical shocks have dissipated. This medium- to long-run concept serves as a benchmark for gauging the degree of monetary stimulus provided by a given policy setting.

Furor over the Fed : Presidential Tweets and Central Bank Independence

Antoine Camous & Dmitry Matveev
We illustrate how market data can be informative about the interactions between monetary and fiscal policy. Federal funds futures are private contracts that reflect investor’s expectations about monetary policy decisions.

Bridging Canadian Business Lending and Market-Based Risk Measures

Guillaume Ouellet Leblanc & Maxime Leboeuf
Lending to business is central to economic growth because it supports investment by firms. Knowing how market participants view risk in the financial system can give the Bank of Canada information about future growth in business loans. In this note, we look at three market-based risk measures and find that sudden increases in the perception of risk in the Canadian banking system are associated with a weaker outlook for business loans and real gross domestic...

Readability and the Bank of Canada

Alexandre Deslongchamps
In this note, I assess the readability of Bank of Canada publications using a formula commonly used for this type of evaluation. I find that Bank publications are more difficult to read than the media articles and other content our target audiences likely consume. This suggests that more simple writing can help the Bank better meet its communication objectives.

The Characteristics of Uninsured Mortgages and their Securitization Potential

Adi Mordel & Maria teNyenhuis
Following changes to housing finance policies that target insured mortgages, uninsured mortgage credit has been growing. This robust growth creates a larger pool of mortgages that may be suitable for private-label residential mortgage-backed securities (RMBS). The development and viability of the Canadian private-label RMBS market would depend on the characteristics of the underlying collateral. We address this data gap by documenting the key features of uninsured mortgages originated since 2014, comparing them across two groups...

Productivity, the Terms of Trade, and the Real Exchange Rate: The Balassa-Samuelson Hypothesis Revisited

Ehsan U. Choudhri & Lawrence L. Schembri
The paper examines how the Balassa-Samuelson hypothesis is affected by a modern variation of the standard model that allows product differentiation (within the traded and nontraded goods sectors) with the number of firms determined exogenously or endogenously. The hypothesis is found to be fragile in the modified framework. Small variations in the elasticity of substitution between home and foreign traded goods (within the range of estimates suggested in the literature), for example, can make the...

Price Movements in the Canadian Residential Mortgage Market

Jason Allen & Darcey McVanel
The authors empirically analyze the price-setting behaviour of the major Canadian banks in the residential mortgage market over the period 1991–2007. They use weekly posted prices of the major mortgage providers to study the degree of competition in mortgage price setting. Their results suggest that the residential mortgage market is imperfectly competitive. They find distinct price leaders and that, as market concentration increases, so does price dispersion – helped by the increased use of discounting...

The Impact of Liquidity on Bank Profitability

Étienne Bordeleau & Christopher Graham
The recent crisis has underlined the importance of sound bank liquidity management. In response, regulators are devising new liquidity standards with the aim of making the financial system more stable and resilient. In this paper, the authors analyse the impact of liquid asset holdings on bank profitability for a sample of large U.S. and Canadian banks. Results suggest that profitability is improved for banks that hold some liquid assets, however, there is a point at...

Trends in U.S. Hours and the Labor Wedge

Simona Cociuba & Alexander Ueberfeldt
From 1980 until 2007, U.S. average hours worked increased by thirteen percent, due to a large increase in female hours. At the same time, the U.S. labor wedge, measured as the discrepancy between a representative household's marginal rate of substitution between consumption and leisure and the marginal product of labor, declined substantially. We examine these trends in a model with heterogeneous households: married couples, single males and single females. Our quantitative analysis shows that the...

Text Mining and the Information Content of Bank of Canada Communications

Scott Hendry & Alison Madeley
This paper uses Latent Semantic Analysis to extract information from Bank of Canada communication statements and investigates what type of information affects returns and volatility in short-term as well as long-term interest rate markets over the 2002-2008 period. Discussions about geopolitical risk and other external shocks, major domestic shocks (SARS and BSE), the balance of risks to the economic projection, and various forward looking statements are found to significantly affect market returns and volatility, especially...

Real Effects of Price Stability with Endogenous Nominal Indexation

Cesaire Meh, Vincenzo Quadrini & Yaz Terajima
We study a model with repeated moral hazard where financial contracts are not fully indexed to inflation because nominal prices are observed with delay as in Jovanovic & Ueda (1997). More constrained firms sign contracts that are less indexed to the nominal price and, as a result, their investment is more sensitive to nominal price shocks. We also find that the overall degree of nominal indexation increases with the uncertainty of the price level. An...

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