Bank of Canada

Displaying 1-40 of 93 results

  • White Papers // Feb 2011

    Discounting In Mortgage Markets

    This paper explains about discounting in mortgage markets. Using transaction-level data on Canadian mortgages, the authors document that over time there's been an increase in the average discount, along with substantial dispersion. The standard explanation for dispersion in credit markets is that lenders engage in risk-based pricing. The setting is...

    Provided By Bank of Canada

  • White Papers // Jan 2011

    The Impact Of The Global Business Cycle On Small Open Economies: A FAVAR Approach For Canada

    Building on the growing evidence on the importance of large data sets for empirical macroeconomic modeling, the authors use a Factor-Augmented VAR (FAVAR) model with more than 260 series for 20 OECD countries to analyze how global developments affect the Canadian economy. The authors focus on several sources of shocks,...

    Provided By Bank of Canada

  • White Papers // Jan 2011

    Building New Plants Or Entering By Acquisition? Estimation Of An Entry Model For The U.S. Cement Industry

    In many industries, firms usually have two choices when expanding into new markets: They can either build a new plant (Greenfield entry) or they can acquire an existing incumbent. In the U.S. cement industry, the comparative advantage (e.g., TFP or size) of entrants versus incumbents and regulatory entry barriers are...

    Provided By Bank of Canada

  • White Papers // Dec 2010

    Leverage, Balance Sheet Size And Wholesale Funding

    Some evidence points to the procyclicality of leverage among financial institutions leading to aggregate volatility. This procyclicality occurs when financial institutions finance their assets with non-equity funding (i.e., debt financed asset expansions). Wholesale funding is an important source of market-based funding that allows some institutions to quickly adjust their leverage....

    Provided By Bank of Canada

  • White Papers // Dec 2010

    The Impact Of Liquidity On Bank Profitability

    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 analyze the impact of liquid asset holdings on bank profitability for a sample...

    Provided By Bank of Canada

  • White Papers // Dec 2010

    Semi-Structural Models For Inflation Forecasting

    The authors propose alternative single-equation semi-structural models for forecasting inflation in Canada, whereby structural New Keynesian models are combined with time-series features in the data. Several marginal cost measures are used, including one that in addition to unit labor cost also integrates relative price shocks known to play an important...

    Provided By Bank of Canada

  • White Papers // Dec 2010

    Composition of International Capital Flows: A Survey

    This paper explains the composition of international capital flows: foreign direct investment, foreign portfolio investment and debt flows (bank loans and bonds). In particular, the authors focus on the following market frictions: asymmetric information in capital markets and exposure to liquidity shocks. The authors show that the information asymmetry between...

    Provided By Bank of Canada

  • White Papers // Dec 2010

    Adverse Selection, Liquidity, And Market Breakdown

    This paper explains the interaction between adverse selection, liquidity risk and beliefs about systemic risk in determining market liquidity, asset prices and welfare. Even a small amount of adverse selection in the asset market can lead to fire-sale pricing and possibly to a market breakdown if it is accompanied by...

    Provided By Bank of Canada

  • White Papers // Dec 2010

    The Macroeconomic Implications Of Changes In Bank Capital And Liquidity Requirements In Canada: Insights From The BoC-GEM-FIN

    The authors use simulations within the BoC-GEM-FIN, the Bank of Canada's version of the Global Economy Model with financial frictions in both the demand and supply sides of the credit market, to investigate the macroeconomic implications of changing bank regulations on the Canadian economy. Specifically, they compute short- and long-run...

    Provided By Bank of Canada

  • White Papers // Nov 2010

    Understanding Systemic Risk: The Trade-Offs Between Capital, Short-Term Funding And Liquid Asset Holdings

    The authors offer a multi-period systemic risk assessment framework with which to assess recent liquidity and capital regulatory requirement proposals in a holistic way. Following Morris and Shin (2009), the authors introduce funding liquidity risk as an endogenous outcome of the interaction between market liquidity risk, solvency risk, and the...

    Provided By Bank of Canada

  • White Papers // Nov 2010

    Has The Inclusion Of Forward-Looking Statements In Monetary Policy Communications Made The Bank Of Canada More Transparent?

    To investigate the extent to which the transparency of the Bank of Canada's monetary policy has improved, the authors examine empirically - over the period 30 October 2000 to 31 May 2007 - the reaction of Canadian financial markets to official Bank communications, and in particular their reaction to the...

    Provided By Bank of Canada

  • White Papers // Oct 2010

    ABS Inflows To The U.S. And The Global Financial Crisis

    It is widely accepted that international capital flows played an important role in the emergence of the U.S. housing bubble and the global financial crisis that followed the bursting of that bubble. In this view, an excess of saving over investment in many emerging market economies, popularly referred to as...

    Provided By Bank of Canada

  • White Papers // Oct 2010

    Losses From Simulated Defaults In Canada's Large Value Transfer System

    The Large Value Transfer System (LVTS) loss-sharing mechanism was designed to ensure that, in the event of a one-participant default, the collateral pledged by direct members of the system would be sufficient to cover the largest possible net debit position of a defaulting participant. However, the situation may not hold...

    Provided By Bank of Canada

  • White Papers // Sep 2010

    Liquidity, Risk, And Return: Specifying An Objective Function For The Management Of Foreign Reserves

    An objective function is a key component of a strategic portfolio management model used to determine the optimal allocations of assets and, possibly, their associated liabilities over some investment horizon. The author discusses investment philosophies and perspectives for the management of foreign reserves, and investigates how to translate the three...

    Provided By Bank of Canada

  • White Papers // Sep 2010

    Nowcasting The Global Economy

    Forecasts of global economic activity and inflation are important inputs when conducting monetary policy in small open economies such as Canada. As part of the Bank of Canada's broad agenda to augment its short-term forecasting tools, the author constructs simple mixed-frequency forecasting equations for quarterly global output, imports, and inflation...

    Provided By Bank of Canada

  • White Papers // Aug 2010

    Adverse Selection, Liquidity And Market Breakdown

    This paper develops a model that illustrates how even a small amount of adverse selection in the asset market can lead to the market breakdown during the crisis. Asymmetric information about asset returns generates the "Lemons" problem when buyers do not know whether an asset is sold because of its...

    Provided By Bank of Canada

  • White Papers // Aug 2010

    Liquidity Transformation And Bank Capital Requirements

    This paper presents a dynamic general equilibrium model where asymmetric information about asset quality leads to asset illiquidity. Banking arises endogenously in this environment as banks can pool illiquid assets to average out their idiosyncratic qualities and issue liquid liabilities backed by pooled assets whose total quality is public information....

    Provided By Bank of Canada

  • White Papers // Aug 2010

    Evaluating The Effect Of The Bank Of Canada's Conditional Commitment Policy

    The author evaluates the effect of the Bank of Canada's conditional commitment regarding the target overnight rate on longer-term market interest rates by taking into account the relationship between interest rates, inflation, and unemployment rates. By using vector autoregressive models of monthly interest rates, month-over-month inflation, and unemployment rates for...

    Provided By Bank of Canada

  • White Papers // Aug 2010

    Asset-Liability Management: An Overview

    Relevant literature on Asset-Liability Management (ALM) is reviewed and different ALM approaches are discussed that may be of interest to the Bank of Canada for the purpose of modeling the Exchange Fund Account (EFA). The author describes the general idea behind ALM, its pros and cons, risk measures and strategies,...

    Provided By Bank of Canada

  • White Papers // Aug 2010

    Inventories In ToTEM

    ToTEM - the Bank of Canada's principal projection and policy-analysis model for the Canadian economy - is extended to include inventories. In the model, firms accumulate inventories of finished goods for their role in facilitating the demand for goods. The model is successful in matching procyclical and volatile inventory investment...

    Provided By Bank of Canada

  • White Papers // Jul 2010

    Banks, Credit Market Frictions, And Business Cycles

    This paper proposes a fully micro-founded framework that incorporates an active banking sector into a DSGE model with a financial accelerator. Then, it evaluates the role and importance of banks' behavior and financial shocks in U.S. business cycles. The banking sector consists of two types of profit-maximizing banks that offer...

    Provided By Bank of Canada

  • White Papers // Jul 2010

    Inventories, Stockouts, And ToTEM

    Inventory investment is an important component of the Canadian business cycle. Despite its small average size - less than 1 per cent of output - it exhibits volatile procyclical fluctuations, accounting for almost one-third of output variance. Procyclicality of inventories is somewhat smaller than that of sales, resulting in a...

    Provided By Bank of Canada

  • White Papers // Jun 2010

    International Capital Flows And Bond Risk Premia

    This paper studies the impact of international capital flows on asset prices through risk premia. The authors investigate whether foreign purchases of U.S. Treasury securities significantly contributed to the decline in excess returns on long-term bonds between 1995 and 2008. The authors run forecasting regressions of realized excess returns on...

    Provided By Bank of Canada

  • White Papers // May 2010

    Idiosyncratic Coskewness And Equity Return Anomalies

    In this paper, the authors show that in a model where investors have heterogeneous preferences, the expected return of risky assets depends on the idiosyncratic coskewness beta, which measures the co-movement of the individual stock variance and the market return. The authors find that there is a negative (positive) relation...

    Provided By Bank of Canada

  • White Papers // May 2010

    Relative Price Movements And Labour Productivity In Canada: A VAR Analysis

    In recent years, the Canadian economy has been affected by strong movements in relative prices brought about by the surging costs of energy and non-energy commodities, with significant implications for the terms of trade, the exchange rate, and the allocation of resources across Canadian sectors and regions. While the energy...

    Provided By Bank of Canada

  • White Papers // Apr 2010

    Prospects For Global Current Account Rebalancing

    The authors use the Bank of Canada's version of the Global Economy Model, a multi-country, multi-sector dynamic stochastic general-equilibrium model with an active banking system (the BoC-GEM-FIN), to study the evolution of global current account balances following the recent global financial crisis. More specifically, they use several shocks from the...

    Provided By Bank of Canada

  • White Papers // Mar 2010

    Market Expectations And Option Prices: Evidence For The Can$/US$ Exchange Rate

    Security prices contain valuable information that can be used to make a wide variety of economic decisions. To extract this information, a model is required that relates market prices to the desired information, and that ideally can be implemented using timely and low-cost methods. The authors explore two models applied...

    Provided By Bank of Canada

  • White Papers // Feb 2010

    Price Level Targeting: What Is The Right Price?

    Various papers have suggested that Price-Level targeting is a welfare improving policy relative to Inflation targeting. From a practical standpoint, this raises an important yet unanswered question: What is the optimal price index to target? This paper derives the optimal price level targeting index defined over the eight main components...

    Provided By Bank of Canada

  • White Papers // Jan 2010

    Limited Nominal Indexation Of Optimal Financial Contracts

    The authors 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 inflation, and as a result, their investment is more...

    Provided By Bank of Canada

  • White Papers // Jan 2010

    Labour Reallocation, Relative Prices And Productivity

    This paper documents the rate at which labor flows between industries and between firms within industries using the most recent data available. It examines the determinants of these flows and their relationship with the productivity growth. It is found that the dispersion of industry employment growth rates has been elevated...

    Provided By Bank of Canada

  • White Papers // Jan 2010

    Search Frictions And Asset Price Volatility

    The author examines the quantitative effect of search frictions in product markets on asset price volatility. The author combines several features from Shi (1997) and Lagos and Wright (2002) in a model without money. Households prefer special goods and general goods. Special goods can be obtained only via a search...

    Provided By Bank of Canada

  • White Papers // Jan 2010

    The Power Of Many: Assessing The Economic Impact Of The Global Fiscal Stimulus

    The Bank of Canada Global Economy Model (BoC-GEM) is a micro-found dynamic stochastic general-equilibrium global model with six regions, multiple sectors, and international linkages. The authors use the model to assess four main fiscal policy concerns: how the effect of an isolated local fiscal stimulus differs from one jointly implemented...

    Provided By Bank of Canada

  • White Papers // Dec 2009

    Regulatory Constraints On Bank Leverage: Issues And Lessons From The Canadian Experience

    The Basel capital framework plays an important role in risk management by linking a bank's minimum capital requirements to the riskiness of its assets. Nevertheless, the risk estimates underlying these calculations may be imperfect, and it appears that a cyclical bias in measures of risk-adjusted capital contributed to procyclical increases...

    Provided By Bank of Canada

  • White Papers // Dec 2009

    Market Timing Of Long-Term Debt Issuance

    The literature on market timing of long-term debt issuance yields mixed evidence that managers can successfully time their debt-maturity issuance. The early results that are indicative of debt-maturity timing are not robust to accounting for structural breaks or to other measures of debt maturity from firm-level data that account for...

    Provided By Bank of Canada

  • White Papers // Dec 2009

    Network Analysis And Canada's Large Value Transfer System

    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...

    Provided By Bank of Canada

  • White Papers // Nov 2009

    Endogenous Rule-Of-Thumb Price-Setters And Monetary Policy

    Studies evaluating the efficacy of monetary policy rules and regimes are often based a benchmark new Keynesian model where the parameters are assumed to be policy invariant. It is possible, however, that some key parameters may not be invariant to changes in monetary policy. In this paper, the authors use...

    Provided By Bank of Canada

  • White Papers // Nov 2009

    Measures Of Aggregate Credit Conditions And Their Potential Use By Central Banks

    Understanding the nature of credit risk has important implications for financial stability. Since authorities - notably, central banks - focus on risks that have systemic implications, it is crucial to develop ways to measure these risks. The difficulty lies in finding reliable measures of aggregate credit risk in the economy,...

    Provided By Bank of Canada

  • White Papers // Oct 2009

    Risk Premium Shocks And The Zero Bound On Nominal Interest Rates

    There appears to be a disconnect between the importance of the zero bound on nominal interest rates in the real-world and predictions from quantitative DSGE models. Recent economic events have reinforced the relevance of the zero bound for monetary policy whereas quantitative models suggest that the zero bound does not...

    Provided By Bank of Canada

  • White Papers // Oct 2009

    Cross-Border Mergers And Hollowing-Out

    The purpose of this paper is to examine the profitability and social desirability of both domestic and foreign mergers in a location-quantity competition model, where the authors allow for the possibility of hollowing-out of the target firm. The authors refer to hollowing-out as the situation where the target firm is...

    Provided By Bank of Canada

  • White Papers // Oct 2009

    Exchange Rate Pass-Through And Monetary Policy: How Strong Is The Link?

    Several authors have presented reduced-form evidence suggesting that the degree of exchange rate pass-through to the consumer price index has declined in Canada since the early 1980s and is currently close to zero. Taylor (2000) suggests that this phenomenon, which has been observed for several other countries, may be due...

    Provided By Bank of Canada

  • White Papers // Dec 2008

    India And The Global Demand For Commodities: Is There An Elephant In The Room?

    After 10 years of impressive growth, India is now the fourth largest economy in the world. Yet, to date, India's impact on global commodity markets has been muted. The authors examine how India's domestic and trade policies have distorted and constrained its demand for commodities. They find that India's industrial...

    Provided By Bank of Canada

  • White Papers // Nov 2008

    A Survey And Risk Analysis Of Selected Non-Bank Retail Payments Systems

    Payment services offered by non-banks have flourished in recent years. The author provides an overview of the different kinds of non-bank retail payments schemes currently available in Canada, illustrating each by focusing on a specific example. Current players in the Canadian marketplace include electronic bill consolidators, such as epost; online...

    Provided By Bank of Canada

  • White Papers // Oct 2008

    Financial Constraints And The Cash-Holding Behaviour Of Canadian Firms

    The proportion of assets held by the average Canadian firm in the form of cash has increased steadily since the early 1990s, and is now roughly twice as large as in 1990. The literature has established that the cash-holding behavior of firms is highly correlated with financial constraints and firm...

    Provided By Bank of Canada

  • White Papers // Oct 2008

    The Canadian Dollar And Commodity Prices: Has The Relationship Changed Over Time?

    The authors examine the impact of the recent run-up in energy and non-energy commodity prices on the Canadian dollar. Using the Bank of Canada's exchange rate equation, they find that the differences between the actual value of the Canadian exchange rate and the simulated values observed in 2007 are not...

    Provided By Bank of Canada

  • White Papers // Sep 2008

    The Impact Of Sovereign Wealth Funds On International Financial Stability

    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...

    Provided By Bank of Canada

  • White Papers // Sep 2008

    What To Do About Bilateral Credit Limits In The LVTS When A Closure Is Anticipated: Risk Versus Liquidity Sharing Among LVTS Participants

    The authors examine the effect of a trade-off between shared credit risk and liquidity efficiency, among participants in Tranche 2 of the Large Value Transfer System (LVTS T2), on their decisions to leave open, or close, their bilateral credit limits (BCLs) to a participant at risk of imminent closure. The...

    Provided By Bank of Canada

  • White Papers // Aug 2008

    Merchant Acceptance, Costs, And Perceptions Of Retail Payments: A Canadian Survey

    Using the results of a survey on accepted means of payment, the authors examine merchant preferences and perceptions of retail payment reliability, risk, and costs; the share of each type of payment method over total sales; and the costs involved in accepting payments. Models are developed for each means of...

    Provided By Bank of Canada

  • White Papers // Jul 2008

    Liquidity Efficiency And Distribution In The LVTS: Non-Neutrality Of System Changes Under Network Asymmetry

    The authors consider the liquidity efficiency of Tranche 2 of the Large Value Transfer System (LVTS T2) by examining, through an empirical analysis, some plausible strategic reactions of individual participants to a system-wide shock to available liquidity in the system. The network structure of the LVTS T2 is found to...

    Provided By Bank of Canada

  • White Papers // Jul 2008

    A Structural VAR Approach To Core Inflation In Canada

    The goal of monetary policy in Canada is to contribute to solid economic performance and rising living standards for Canadians. To reach this goal, the Bank of Canada committed to explicit, quantitative inflation targets. By specifying the inflation-control target explicitly in terms of change in the total consumer price index...

    Provided By Bank of Canada

  • White Papers // Jul 2008

    The Implementation Of Monetary Policy In Canada

    The authors present a detailed discussion of the Bank of Canada's framework for the implementation of monetary policy. As background, they provide a brief overview of the financial system in Canada, including a discussion of the financial services industry and the money market. Key features of the large-value payments system,...

    Provided By Bank of Canada

  • White Papers // Jun 2008

    The Effect of the Sarbanes-Oxley Act on CEO Pay for Luck

    According to the rent-extraction hypothesis, weak corporate governance allows entrenched CEOs to capture the pay-setting process and benefit from events outside of their control - get paid for luck. This paper shows that the independence requirement imposed on boards of directors by the Sarbanes-Oxley Act of 2002 (SOX), together with...

    Provided By Bank of Canada

  • White Papers // Feb 2011

    Discounting In Mortgage Markets

    This paper explains about discounting in mortgage markets. Using transaction-level data on Canadian mortgages, the authors document that over time there's been an increase in the average discount, along with substantial dispersion. The standard explanation for dispersion in credit markets is that lenders engage in risk-based pricing. The setting is...

    Provided By Bank of Canada

  • White Papers // Jan 2011

    The Impact Of The Global Business Cycle On Small Open Economies: A FAVAR Approach For Canada

    Building on the growing evidence on the importance of large data sets for empirical macroeconomic modeling, the authors use a Factor-Augmented VAR (FAVAR) model with more than 260 series for 20 OECD countries to analyze how global developments affect the Canadian economy. The authors focus on several sources of shocks,...

    Provided By Bank of Canada

  • White Papers // Jan 2011

    Building New Plants Or Entering By Acquisition? Estimation Of An Entry Model For The U.S. Cement Industry

    In many industries, firms usually have two choices when expanding into new markets: They can either build a new plant (Greenfield entry) or they can acquire an existing incumbent. In the U.S. cement industry, the comparative advantage (e.g., TFP or size) of entrants versus incumbents and regulatory entry barriers are...

    Provided By Bank of Canada

  • White Papers // Feb 2010

    Price Level Targeting: What Is The Right Price?

    Various papers have suggested that Price-Level targeting is a welfare improving policy relative to Inflation targeting. From a practical standpoint, this raises an important yet unanswered question: What is the optimal price index to target? This paper derives the optimal price level targeting index defined over the eight main components...

    Provided By Bank of Canada

  • White Papers // Dec 2010

    Leverage, Balance Sheet Size And Wholesale Funding

    Some evidence points to the procyclicality of leverage among financial institutions leading to aggregate volatility. This procyclicality occurs when financial institutions finance their assets with non-equity funding (i.e., debt financed asset expansions). Wholesale funding is an important source of market-based funding that allows some institutions to quickly adjust their leverage....

    Provided By Bank of Canada

  • White Papers // Dec 2010

    The Impact Of Liquidity On Bank Profitability

    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 analyze the impact of liquid asset holdings on bank profitability for a sample...

    Provided By Bank of Canada

  • White Papers // Dec 2010

    Semi-Structural Models For Inflation Forecasting

    The authors propose alternative single-equation semi-structural models for forecasting inflation in Canada, whereby structural New Keynesian models are combined with time-series features in the data. Several marginal cost measures are used, including one that in addition to unit labor cost also integrates relative price shocks known to play an important...

    Provided By Bank of Canada

  • White Papers // Dec 2010

    Composition of International Capital Flows: A Survey

    This paper explains the composition of international capital flows: foreign direct investment, foreign portfolio investment and debt flows (bank loans and bonds). In particular, the authors focus on the following market frictions: asymmetric information in capital markets and exposure to liquidity shocks. The authors show that the information asymmetry between...

    Provided By Bank of Canada

  • White Papers // Dec 2010

    Adverse Selection, Liquidity, And Market Breakdown

    This paper explains the interaction between adverse selection, liquidity risk and beliefs about systemic risk in determining market liquidity, asset prices and welfare. Even a small amount of adverse selection in the asset market can lead to fire-sale pricing and possibly to a market breakdown if it is accompanied by...

    Provided By Bank of Canada

  • White Papers // Nov 2010

    Understanding Systemic Risk: The Trade-Offs Between Capital, Short-Term Funding And Liquid Asset Holdings

    The authors offer a multi-period systemic risk assessment framework with which to assess recent liquidity and capital regulatory requirement proposals in a holistic way. Following Morris and Shin (2009), the authors introduce funding liquidity risk as an endogenous outcome of the interaction between market liquidity risk, solvency risk, and the...

    Provided By Bank of Canada

  • White Papers // Aug 2010

    Liquidity Transformation And Bank Capital Requirements

    This paper presents a dynamic general equilibrium model where asymmetric information about asset quality leads to asset illiquidity. Banking arises endogenously in this environment as banks can pool illiquid assets to average out their idiosyncratic qualities and issue liquid liabilities backed by pooled assets whose total quality is public information....

    Provided By Bank of Canada

  • White Papers // Jan 2010

    Labour Reallocation, Relative Prices And Productivity

    This paper documents the rate at which labor flows between industries and between firms within industries using the most recent data available. It examines the determinants of these flows and their relationship with the productivity growth. It is found that the dispersion of industry employment growth rates has been elevated...

    Provided By Bank of Canada

  • White Papers // May 2010

    Idiosyncratic Coskewness And Equity Return Anomalies

    In this paper, the authors show that in a model where investors have heterogeneous preferences, the expected return of risky assets depends on the idiosyncratic coskewness beta, which measures the co-movement of the individual stock variance and the market return. The authors find that there is a negative (positive) relation...

    Provided By Bank of Canada

  • White Papers // Jan 2010

    Search Frictions And Asset Price Volatility

    The author examines the quantitative effect of search frictions in product markets on asset price volatility. The author combines several features from Shi (1997) and Lagos and Wright (2002) in a model without money. Households prefer special goods and general goods. Special goods can be obtained only via a search...

    Provided By Bank of Canada

  • White Papers // Feb 2009

    Optimal Policy Under Commitment And Price Level Stationarity

    This paper proposes a simple analytical method to determine the stationary of a normalized variable from the solution to a normalized model i.e. a model whose variables must be expressed in relative terms or must be differenced for a solution to exist. The paper then applies the method to answer...

    Provided By Bank of Canada

  • White Papers // Feb 2009

    Assessing Indexation-Based Calvo Inflation Models

    Using identification-robust methods, the authors estimate and evaluate for Canada and the United States various classes of inflation equations based on generalized structural Calve-type models. The models allow for different forms of frictions and vary in their assumptions regarding the type of price indexation adopted by firms. Point and confidence-set...

    Provided By Bank of Canada

  • White Papers // Oct 2009

    Cross-Border Mergers And Hollowing-Out

    The purpose of this paper is to examine the profitability and social desirability of both domestic and foreign mergers in a location-quantity competition model, where the authors allow for the possibility of hollowing-out of the target firm. The authors refer to hollowing-out as the situation where the target firm is...

    Provided By Bank of Canada

  • White Papers // Jan 2009

    Uninsurable Investment Risks And Capital Income Taxation

    Several authors have presented reduced-form evidence suggesting that the degree of exchange rate pass-through to the consumer price index has declined in Canada since the early 1980s and are currently close to zero. Taylor (2000) suggests that this phenomenon, which has been observed for several other countries, may be due...

    Provided By Bank of Canada

  • White Papers // Oct 2009

    Exchange Rate Pass-Through And Monetary Policy: How Strong Is The Link?

    Several authors have presented reduced-form evidence suggesting that the degree of exchange rate pass-through to the consumer price index has declined in Canada since the early 1980s and is currently close to zero. Taylor (2000) suggests that this phenomenon, which has been observed for several other countries, may be due...

    Provided By Bank of Canada

  • White Papers // May 2008

    The Global Effects Of U.S. Fiscal Policy

    The author examines the global impact of U.S. fiscal policy using the Bank of Canada's Global Economy Model (Lalonde and Muir 2007). In particular, the author examines the global macroeconomic implications of the expiration of major tax cuts in the United States and of expected increases in U.S. entitlement program...

    Provided By Bank of Canada

  • White Papers // May 2008

    The Effects Of A Disruption In CDSX Settlement On Activity In The LVTS: A Simulation Study

    The Large Value Transfer System (LVTS) for settling large payments, and CDSX for settling debt and equity trades, are two of the main settlement systems in Canada. They are closely linked; for example, at the end of the day the final CDSX payment obligations must settle on the Bank of...

    Provided By Bank of Canada

  • White Papers // May 2008

    Reforming The IMF: Lessons From Modern Central Banking

    The authors examine the institutional and governance framework of modern central banks to determine whether there are lessons that can be applied to the International Monetary Fund's (IMF's) institutional framework. Such a comparison is appealing for two reasons. First, both central banks and the IMF carry out tasks that can...

    Provided By Bank of Canada

  • White Papers // Dec 2009

    Regulatory Constraints On Bank Leverage: Issues And Lessons From The Canadian Experience

    The Basel capital framework plays an important role in risk management by linking a bank's minimum capital requirements to the riskiness of its assets. Nevertheless, the risk estimates underlying these calculations may be imperfect, and it appears that a cyclical bias in measures of risk-adjusted capital contributed to procyclical increases...

    Provided By Bank of Canada

  • White Papers // Dec 2009

    Market Timing Of Long-Term Debt Issuance

    The literature on market timing of long-term debt issuance yields mixed evidence that managers can successfully time their debt-maturity issuance. The early results that are indicative of debt-maturity timing are not robust to accounting for structural breaks or to other measures of debt maturity from firm-level data that account for...

    Provided By Bank of Canada

  • White Papers // Dec 2009

    Network Analysis And Canada's Large Value Transfer System

    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...

    Provided By Bank of Canada

  • White Papers // Nov 2009

    Measures Of Aggregate Credit Conditions And Their Potential Use By Central Banks

    Understanding the nature of credit risk has important implications for financial stability. Since authorities - notably, central banks - focus on risks that have systemic implications, it is crucial to develop ways to measure these risks. The difficulty lies in finding reliable measures of aggregate credit risk in the economy,...

    Provided By Bank of Canada

  • White Papers // Aug 2009

    A Financial Conditions Index For The United States

    The financial crisis of 2007-09 has highlighted the importance of developments in financial conditions for real economic activity. The authors estimate the effect of current and past shocks to financial variables on U.S. GDP growth by constructing two growth-based Financial Conditions Indexes (FCIs) that measure the contribution to quarterly (annualized)...

    Provided By Bank of Canada

  • White Papers // Jul 2009

    Strengthening IMF Surveillance: An Assessment Of Recent Reforms

    The authors assess the potential impact of recently approved reforms to International Monetary Fund (IMF) surveillance; namely, the "2007 Decision on Bilateral Surveillance Over Members' Policies" and the "Statement of Surveillance Priorities" (SSP). They conclude that these complementary reforms have the potential to create a comprehensive and coherent framework for...

    Provided By Bank of Canada

  • White Papers // Jul 2009

    The Outlook For The Global Supply Of Oil: Running On Faith?

    The dramatic reduction in global demand, and the decline in the spot price of crude oil in the second half of last year, may have significant implications for the future supply of oil. Investments in conventional methods of extraction have been constrained, since easily accessible oil reserves are typically concentrated...

    Provided By Bank of Canada