76 Works

Social Learning and Monetary Policy at the Effective Lower Bound

Jasmina Arifovic, Alex Grimaud, isabelle salle & Gauthier Vermandel
The first contribution of this paper is to develop a model that jointly accounts for the missing disinflation in the wake of the Great Recession and the subsequently observed inflation-less recovery. The key mechanism works through heterogeneous expectations that may durably lose their anchorage to the central bank (CB)’s target and coordinate on particularly persistent below-target paths. We jointly estimate the structural and the learning parameters of the model by matching moments from both macroeconomic...

IMPACT: The Bank of Canada’s International Model for Projecting Activity

Patrick Blagrave, Claudia Godbout, Justin-Damien Guénette, René Lalonde & Nikita Perevalov
We present the structure and features of the International Model for Projecting Activity (IMPACT), a global semi-structural model used to conduct projections and policy analysis at the Bank of Canada. Major blocks of the model are developed based on the rational error correction framework of Kozicki and Tinsley (1999), which allows the model to strike a balance between theoretical structure and empirical performance. IMPACT divides the world economy into six regions: United States, the euro...

Welfare Analysis of Equilibria With and Without Early Termination Fees in the US Wireless Industry

Joseph Cullen, Nicolas Schutz & Oleksandr Shcherbakov
The elimination of long-term contracts and early termination fees (ETFs) in the US wireless industry at the end of 2015 increased monthly service fees by 2 to 5 percent. Nevertheless, consumers are clearly better off without ETFs. While firms’ revenues from ETFs vanish, their profits from monthly fees increase. As a result, the overall effect on producer profits is less clear.

Privacy in CBDC technology

Sriram Darbha & Rakesh Arora
Privacy is a key aspect of a potential central bank digital currency system. We outline different technical choices to enact various privacy models while complying with the appropriate regulations. We develop a framework to evaluate privacy models and list key risks and trade-offs in privacy design.

Designing a CBDC for universal access

John Miedema, Cyrus Minwalla, Martine Warren & Dinesh Shah
If the Bank of Canada issues a central bank digital currency, the technology should be designed for universal access.

Cash and COVID-19: The impact of the pandemic on demand for and use of cash

Heng Chen, Walter Engert, Kim Huynh, Gradon Nicholls, Mitchell Nicholson & Julia Zhu
Consumer spending declined significantly during the recent COVID-19 pandemic. This negative shock likely reduced spending across all methods of payment (cash, debit, credit, etc.). The mix of payment methods consumers use could also be affected. We study how the pandemic has influenced the demand for and use of cash. We also offer insights into the use of other payment methods, such as debit and credit cards.

Primary Dealers and the Demand for Government Debt

Jason Allen, Jakub Kastl & Milena Wittwer
"The main objectives of debt management are to raise stable and low-cost funding to meet the government’s financial needs and to maintain a well-functioning market for government securities. A challenge is determining how to sell government debt: the sale format, the choice of securities to offer and the allocation across different maturities. This paper focuses on the allocation of debt across maturities. We propose a method for identifying dependencies in the demand for securities of...

Will exchange-traded funds shape the future of bond dealing?

Rohan Arora, Jean-Sébastien Fontaine, Corey Garriott & Guillaume Ouellet Leblanc
Bond dealers have traditionally kept bonds in an inventory until clients buy them. But now, dealers have another way to access bonds for their clients: the exchange-traded fund. We discuss this new way to manage bond dealing and what it might mean for bond markets.

Strengthening Inflation Targeting: Review and Renewal Processes in Canada and Other Advanced Jurisdictions

Robert Amano, Thomas J. Carter & Lawrence L. Schembri
A growing number of advanced economies with monetary policy frameworks that involve inflation targeting have adopted formal processes of review and renewal. These allow policy-makers and other stakeholders to assess the current framework’s performance to date, explore the merits of potential alternative frameworks and reach decisions about how best to enhance design and implementation. In this paper, we argue that well-governed review and renewal processes can contribute importantly to the success of a monetary policy...

The Interplay of Financial Education, Financial Literacy, Financial Inclusion and Financial Stability: Any Lessons for the Current Big Tech Era?

Nicole Jonker & Anneke Kosse
"The effort to make financial services accessible and affordable for everyone is known as financial inclusion. Large technology firms, such as Apple, Alibaba, Amazon, Facebook, eBay, Google and Tencent, have recently started to offer financial services that include payment, insurance and loans. The entry of these so-called big techs could pose opportunities as well as challenges related to financial inclusion. On one hand, big techs have the potential to draw large numbers of people who...

Predicting Payment Migration in Canada

Anneke Kosse, Zhentong Lu & Gabriel Xerri
Developments are underway to replace Canada’s two core payment systems with three new systems. We use a discrete choice model to predict migration patterns of end-users and financial institutions for future systems and discuss their policy implications.

Cyclicality of Schooling: New Evidence from Unobserved Components Models

Barbara Sadaba, Sunčica Vujič & Sofia Maier
What is the time-varying impact of economic cycles on decisions to invest in human capital?

Canadian stock market since COVID‑19: Why a V-shaped price recovery?

Jean-Sébastien Fontaine, Guillaume Ouellet Leblanc & Ryan Shotlander
Between February 19 and March 23, 2020, the Canadian stock market plunged due to the severe economic impact of COVID-19. By the end of the summer, the stock market had already recovered a significant portion of its losses, leaving many asking if investors see the economy through rose-coloured glasses. Despite these concerns, we find that current market valuations for companies on the Toronto Stock Exchange align well, on average, with the declines in earning forecasts...

Announcing the Bankers’ Acceptance Purchase Facility: a COVID‑19 event study

Rohan Arora, Sermin Gungor, Kaetlynd McRae & Jonathan Witmer
The Bank of Canada launched the Bankers’ Acceptance Purchase Facility (BAPF) to ensure that the bankers’ acceptance (BA) market could continue to function well during the financial crisis induced by the COVID‑19 pandemic. We review the impact that the announcement of this facility had on BA yields in the secondary market. We find that BA yield spreads declined by 15 basis points on the day of the announcement and by up to 70 basis points...

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...

Registration Year

  • 2020
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Resource Types

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Affiliations

  • Bank of Canada
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