E - Macroeconomics and Monetary Economics

• Losses from Simulated Defaults in Canada's Large Value Transfer System

  Staff Discussion Paper 2010-14 Nellie Zhang, Tom Hossfeld

  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 if the indirect effects of the defaults are taken into consideration, or if two participants default during the same payment cycle.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Financial institutions, Financial stability, Payment clearing and settlement systems JEL Code(s): E, E4, E47, G, G2, G21

• Banks, Credit Market Frictions, and Business Cycles

  Staff Working Paper 2010-24 Ali Dib

  The author proposes a micro-founded framework that incorporates an active banking sector into a dynamic stochastic general-equilibrium model with a financial accelerator.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Economic models, Financial stability JEL Code(s): E, E3, E32, E4, E44, G, G1

• Central Bank Haircut Policy

  Staff Working Paper 2010-23 James Chapman, Jonathan Chiu, Miguel Molico

  We present a model of central bank collateralized lending to study the optimal choice of the haircut policy. We show that a lending facility provides a bundle of two types of insurance: insurance against liquidity risk as well as insurance against downside risk of the collateral.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Financial services, Financial system regulation and policies, Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): E, E4, E40, E5, E50

• Nowcasting the Global Economy

  Staff Discussion Paper 2010-12 James Rossiter

  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 using the monthly global Purchasing Managers Index (PMI).

  Content Type(s): Staff research, Staff discussion papers Topic(s): Economic models, International topics JEL Code(s): E, E3, E37, F, F4, F47

• Evaluating the Effect of the Bank of Canada's Conditional Commitment Policy

  Staff Discussion Paper 2010-11 Zhongfang He

  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.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Interest rates, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E4, E5, E6

• Liquidity Transformation and Bank Capital Requirements

  Staff Working Paper 2010-22 Hajime Tomura

  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.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Financial system regulation and policies JEL Code(s): D, D8, D82, E, E4, E44, G, G2, G21

• Inventories in ToTEM

  Staff Discussion Paper 2010-9 Oleksiy Kryvtsov, Yang Zhang

  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.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Business fluctuations and cycles, Economic models JEL Code(s): E, E3, E31, E32

• Inventories, Stockouts, and ToTEM

  Staff Discussion Paper 2010-8 Oleksiy Kryvtsov, Yang Zhang

  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.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Business fluctuations and cycles, Monetary policy transmission JEL Code(s): E, E3, E31, E32

• An Assessment of the Bank of Canada's Term PRA Facility

  Staff Working Paper 2010-20 Emanuella Enenajor, Alex Sebastian, Jonathan Witmer

  This paper empirically assesses the effectiveness of the Bank of Canada's term Purchase and Resale Agreement (PRA) facility in reducing short-term bank funding pressures, as measured by the CDOR-OIS spread.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial stability JEL Code(s): E, E5, E58, G, G1, G12, G18

• A Model of Housing Stock for Canada

  Staff Working Paper 2010-19 David Dupuis, Yi Zheng

  Using an error-correction model (ECM) framework, the authors attempt to quantify the degree of disequilibrium in Canadian housing stock over the period 1961–2008 for the national aggregate and over 1981–2008 for the provinces.

  Content Type(s): Staff research, Staff working papers Topic(s): Domestic demand and components JEL Code(s): E, E2, E21, J, J0, J00