Staff working papers

• Financial Intermediation, Liquidity and Inflation

  Staff Working Paper 2008-49 Jonathan Chiu, Césaire Meh

  This paper develops a search-theoretic model to study the interaction between banking and monetary policy and how this interaction affects the allocation and welfare. Regarding how banking affects the welfare costs of inflation: First, we find that, with banking, inflation generates smaller welfare costs.

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy framework JEL Code(s): E, E4, E40, E5, E50

• Futures Markets, Oil Prices and the Intertemporal Approach to the Current Account

  Staff Working Paper 2008-48 Elif Arbatli

  The intertemporal approach to the current account suggests modeling movements in the current account in a forward-looking, dynamic framework. In this framework, the current account reflects consumption smoothing of agents that lend and borrow from the rest of the world in the face of transitory shocks to income.

  Content Type(s): Staff research, Staff working papers Topic(s): Balance of payments and components JEL Code(s): C, C2, C22, F, F2, F21, F3, F32, G, G1, G13

• How Important Is Liquidity Risk for Sovereign Bond Risk Premia? Evidence from the London Stock Exchange

  Staff Working Paper 2008-47 Ron Alquist

  This paper uses the framework of arbitrage-pricing theory to study the relationship between liquidity risk and sovereign bond risk premia. The London Stock Exchange in the late 19th century is an ideal laboratory in which to test the proposition that liquidity risk affects the price of sovereign debt.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, International topics JEL Code(s): F, F2, F21, F3, F34, F36, G, G1, G12, G15

• Indebtedness and the Household Financial Health: An Examination of the Canadian Debt Service Ratio Distribution

  Staff Working Paper 2008-46 Umar Faruqui

  The household debt-to-disposable income ratio in Canada increased from 110 per cent in 1999 to 127 per cent in 2007. This increase has raised questions about the ability of households to service their increased debt if faced with a negative economic or socio-economic shock.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Monetary and financial indicators JEL Code(s): D, D1, D11, D14, D3, D39

• Firm Size and Productivity

  Staff Working Paper 2008-45 Danny Leung, Césaire Meh, Yaz Terajima

  This paper examines the relationship between firm size and productivity. In contrast to previous studies, this paper offers evidence of the relationship not only from manufacturing firms, but from non-manufacturing firms as well.

  Content Type(s): Staff research, Staff working papers Topic(s): Productivity JEL Code(s): L, L1, L11, L2, L25, O, O4, O47

• The Role of Foreign Exchange Dealers in Providing Overnight Liquidity

  Staff Working Paper 2008-44 Chris D'Souza

  This paper illustrates that dealers in foreign exchange markets not only provide intraday liquidity, they are key participants in the provision of overnight liquidity. Dealing institutions receive compensation for holding undesired inventory balances in part from the information they receive in customer trades.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Financial markets, Market structure and pricing JEL Code(s): D, D8, D82, F, F3, F31, G, G2, G21

• McCallum Rules, Exchange Rates, and the Term Structure of Interest Rates

  Staff Working Paper 2008-43 Antonio Diez de los Rios

  McCallum (1994a) proposes a monetary rule where policymakers have some tendency to resist rapid changes in exchange rates to explain the forward premium puzzle.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Interest rates, Monetary policy transmission JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G12, G15

• Which Bank is the "Central" Bank? An Application of Markov Theory to the Canadian Large Value Transfer System

  Staff Working Paper 2008-42 Morten Bech, James Chapman, Rodney J. Garratt

  We use a method similar to Google's PageRank procedure to rank banks in the Canadian Large Value Transfer System (LVTS). Along the way we obtain estimates of the payment processing speeds for the individual banks.

  Content Type(s): Staff research, Staff working papers Topic(s): Payment clearing and settlement systems JEL Code(s): C, C1, C11, E, E5, E50, G, G2, G20

• Are There Canada-U.S. Differences in SME Financing?

  Staff Working Paper 2008-41 Danny Leung, Césaire Meh, Yaz Terajima

  Previous surveys of Canadian and U.S. business owners suggest that access to financing in Canada may be more problematic than in the United States. Using the 2003 Survey of Small Business Financing in the United States and the 2004 Survey on Financing of Small and Medium Enterprises in Canada, this paper examines whether this perception can be better quantified.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial services JEL Code(s): C, C2, C21, G, G2, G21

• Price Level Targeting in a Small Open Economy with Financial Frictions: Welfare Analysis

  Staff Working Paper 2008-40 Ali Dib, Caterina Mendicino, Yahong Zhang

  How important are the benefits of low price-level uncertainty? This paper explores the desirability of price-level path targeting in an estimated DSGE model fit to Canadian data. The policy implications are based on social welfare evaluations.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Inflation and prices, Monetary policy framework JEL Code(s): E, E3, E31, E32, E5, E52