September 11, 2009
Staff research, Publications
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September 11, 2009
Understanding Corporate Bond Spreads Using Credit Default Swaps
Corporate bond spreads worldwide have widened markedly since the beginning of the credit crisis in 2007. This article examines default and liquidity risk–the main components of the corporate bond spread–for Canadian firms that issue bonds in the U.S. market, focusing in particular on their evolution during the credit crisis. They find that, during this period, the liquidity component increased more for speculative-grade bonds than it did for investment-grade bonds, consistent with a "flight-to-quality" phenomenon. An important implication of their results for policy-makers seeking to address problems in credit markets is that the liquidity risk in corporate spreads for investment and speculative bonds behaves differently than the default risk, especially during crisis episodes. -
September 11, 2009
Agency Conflicts in the Process of Securitization
Recent evidence finds a positive association between the prevalence of loans of inferior quality and the growth in securitized products. Some attribute this development to the lack of incentives for originators to screen and monitor the performance of securitized loans; others stress that certain factors, such as balance-sheet management, also contributed to the problem, making it difficult to pin down the reason for the proliferation of such loans during the period of high securitization growth. The author reviews the conflicts of interest between participants in the securitization process that contributed to the ongoing financial turmoil and highlights the most recent policy measures and potential solutions for ameliorating these agency issues. -
September 11, 2009
Bank of Canada Review - Autumn 2009
Bank of Canada liquidity actions in response to the financial market turmoil; understanding corporate bond spreads using credit default swaps; review of the conflicts of interest between participants in the securitization process highlighting the most recent policy measures and potential solutions for ameliorating these agency issues. -
Short Changed? The Market's Reaction to the Short Sale Ban of 2008
Do short sales restrictions have an impact on security prices? We address this question in the context of a natural experiment surrounding the short sale ban of 2008 using a comprehensive sample of Canadian stocks cross-listed in the U.S. -
Productivity, the Terms of Trade, and the Real Exchange Rate: The Balassa-Samuelson Hypothesis Revisited
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. -
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 growthbased financial conditions indexes (FCIs) that measure the contribution to quarterly (annualized) GDP growth from financial conditions. -
July 25, 2009
Senior Loan Officer Survey - Second-Quarter 2009
Survey respondents reported continued tightening in lending conditions (Chart 1). This tightening was evident in both the price and non-price1 aspects of business lending (Chart 2). Note that the balance of opinion indicates only the amount of agreement among respondents about the direction of the change in conditions; it does not provide any information on the magnitude of the change. -
July 23, 2009
Monetary Policy Report – July 2009
The global economy has suffered an intense, synchronous recession and considerable excess supply has opened up. -
July 13, 2009
Business Outlook Survey - Summer 2009
The results of the summer survey indicate that businesses foresee an improvement in the economic outlook. In particular, the balances of opinion on both future sales and employment have turned positive. Nevertheless, firms expect their activity to recover only gradually, and they continue to be cautious regarding investment.