E - Macroeconomics and Monetary Economics

• December 15, 2015

  Indebted Households and Potential Vulnerabilities for the Canadian Financial System: A Microdata Analysis

  Financial System Review - December 2015 Gino Cateau, Tom Roberts, Jie Zhou

  Over the past decade, an increasing proportion of households in Canada have become highly indebted relative to their income. These highly indebted households now hold one-fifth of total Canadian household debt.Simulations suggest that this greater degree of household indebtedness could exacerbate the impact of shocks to income and interest rates relative to the pre-crisis period. However, an assessment of the vulnerability of the Canadian financial system should, among other factors, account for the ability of Canadian financial institutions to withstand losses from the household sector.

  Content Type(s): Publications, Financial System Review articles Topic(s): Credit and credit aggregates, Financial stability, Housing, Recent economic and financial developments JEL Code(s): D, D1, D14, E, E5, E51

• Estimating Canada’s Effective Lower Bound

  Staff Analytical Note 2015-2 Jonathan Witmer, Jing Yang

  In 2009, the Bank of Canada set its effective lower bound (ELB) at 25 basis points (bps). Given the recent experience of Sweden, Denmark, Switzerland and the euro area with negative interest rates, we examine the economics of negative interest rates and suggest that cash storage costs are the source of a negative lower bound on interest rates.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Central bank research, Monetary policy framework, Monetary policy implementation JEL Code(s): D, D5, D53, E, E4, E41, E43, E5, E58

• Exchange Rate Fluctuations and Labour Market Adjustments in Canadian Manufacturing Industries

  Staff Working Paper 2015-45 Gabriel Bruneau, Kevin Moran

  We estimate the link between exchange rate fluctuations and the labour input of Canadian manufacturing industries. The analysis is based on a dynamic model of labour demand, and the econometric strategy employs a panel two-step approach for cointegrating regressions.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Exchange rate regimes, Exchange rates, Labour markets, Recent economic and financial developments JEL Code(s): E, E2, E24, F, F1, F14, F16, F3, F31, F4, F41, J, J2, J23

• On the Essentiality of E-Money

  Staff Working Paper 2015-43 Jonathan Chiu, Tsz-Nga Wong

  Recent years have witnessed the advances of e-money systems such as Bitcoin, PayPal and various forms of stored-value cards. This paper adopts a mechanism design approach to identify some essential features of different payment systems that implement and improve the constrained optimal resource allocation.

  Content Type(s): Staff research, Staff working papers Topic(s): Bank notes, Digital currencies and fintech, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E58, L, L5, L51
• November 19, 2015

  A Survey of Consumer Expectations for Canada

  Bank of Canada Review - Autumn 2015 Marc-André Gosselin, Mikael Khan

  The Bank of Canada recently launched a quarterly survey to measure the expectations of Canadian households: the Canadian Survey of Consumer Expectations (CSCE). The data collected provide comprehensive information about consumer expectations for and uncertainty about inflation, the labour market and household finance. This article describes the CSCE and illustrates its potential to offer rich information about Canadian consumers for researchers and policy-makers.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Central bank research, Housing, Inflation and prices, Interest rates, Labour markets, Monetary policy and uncertainty JEL Code(s): D, D1, D12, D8, D84, E, E3, E31, E5, E52, J, J0
• November 19, 2015

  Measuring Durable Goods and Housing Prices in the CPI: An Empirical Assessment

  Bank of Canada Review - Autumn 2015 Patrick Sabourin, Pierre Duguay

  While the CPI is the most commonly used measure to track inflation, it is not fully consistent with a true cost-of-living index (COLI). Although the official treatment of durable goods and housing in the CPI represents an acceptable compromise in the current environment of low and stable inflation, Sabourin and Duguay suggest that it would be worthwhile to consider treating housing and durables in the same way and bringing the actual CPI closer to a COLI. This could be accomplished by employing an enhanced user-cost approach to calculate the imputed cost of the services provided by the use of durable goods or housing.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation and prices JEL Code(s): E, E3, E31, E5, E52
• November 19, 2015

  The Effect of Regulatory Changes on Monetary Policy Implementation Frameworks

  Bank of Canada Review - Autumn 2015 Meyer Aaron, Annick Demers, Sean Durr

  This article provides an analysis of some recent banking regulatory initiatives that are likely to influence the activities of financial intermediaries and the effectiveness of central bank monetary policy implementation frameworks. Although the effects of individual regulations can be anticipated in most cases, the combined regulatory impact is not yet clear. Central banks should, however, be able to accommodate the effects of the emerging regulatory environment within their existing policy implementation frameworks.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial institutions, Financial markets, Financial system regulation and policies, Monetary policy implementation JEL Code(s): E, E5, E52, G, G2, G21, L, L5, L50
• November 19, 2015

  Recent Enhancements to the Management of Canada’s Foreign Exchange Reserves

  Bank of Canada Review - Autumn 2015 Mervin Merkowsky, Eric Wolfe

  As the size and complexity of the foreign exchange reserves have grown over the years, enhancements to the management framework needed to keep pace. This is a common theme for most reserve managers around the world. In Canada, the enhancements focused on governance, portfolio management, risk measurement and risk management. This article briefly describes these enhancements, why they were implemented and some of the lessons learned along the way.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Central bank research, Foreign reserves management, Recent economic and financial developments JEL Code(s): E, E5, E58, F, F3, F31, G, G1

• Reputational Risk Management in Central Banks

  Staff Discussion Paper 2015-16 Jill Vardy

  This paper discusses reputational risk in the context of central banking and explains why it matters to central banks. It begins with a general discussion of reputational risk within the broader framework of risk management.

  Content Type(s): Staff discussion papers Topic(s): Credibility, International topics, Monetary policy implementation JEL Code(s): E, E5, E52, E58

• Forward Guidance at the Effective Lower Bound: International Experience

  Staff Discussion Paper 2015-15 Karyne B. Charbonneau, Lori Rennison

  Forward guidance is one of the policy tools that a central bank can implement if it seeks to provide additional monetary stimulus when it is operating at the effective lower bound (ELB) on interest rates. It became more widely used during and after the global financial crisis.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Monetary policy and uncertainty, Monetary policy communications, Monetary policy framework, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E4, E43, E5, E52, E58, E6