June 22, 2005
Staff research, Publications
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June 18, 2005
Recent Trends in Canadian Defined-Benefit Pension Sector Investment and Risk Management
Defined-benefit (DB) pension plans account for the majority of employer pension fund assets. In recent years, a number of DB plans have become underfunded, in sharp contrast to the 1990s, when many plans had large actuarial surpluses. The deterioration in the financial health of DB plans has underscored various longer-term structural issues that could make it increasingly difficult for plan sponsors to manage the financial risks of these plans. Tuer and Woodman examine how funding deficits, a greater focus on plan liabilities, a low yield environment, and changing investment beliefs are influencing investment decisions in the Canadian DB pension sector. They review the funding of DB plans, changing views on the equity-risk premium, and the shift towards liability-centred approaches to investment and how these developments are affecting pension sector investment. They also consider additional influences on the pension sector, including the limited supply of long-term bonds, the elimination of the foreign-property rule, and the movement towards fair-value accounting and a financial-economics approach to actuarial valuation, as well as their implications for financial markets. -
Lines of Credit and Consumption Smoothing: The Choice between Credit Cards and Home Equity Lines of Credit
The author models the choice between credit cards and home equity lines of credit (HELOCs) within a framework where consumers hold lines of credit as instruments of consumption smoothing across state and time. -
Risk Perceptions and Attitudes
Changes in risk perception have been used in various contexts to explain shorter-term developments in financial markets, as part of a mechanism that amplifies fluctuations in financial markets, as well as in accounts of "irrational exuberance." -
Endogenous Central Bank Credibility in a Small Forward-Looking Model of the U.S. Economy
The linkages between inflation and the economy's cyclical position are thought to be strongly affected by the credibility of monetary authorities.
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