Staff analytical notes

• Redemption Runs in Canadian Corporate Bond Funds?

  Staff Analytical Note 2018-21 Rohan Arora

  Mutual funds employ a host of tools to manage redemption run risk. However, our results suggest that Canadian corporate bond funds may be vulnerable to redemption runs, especially when they are less liquid and when market volatility is high.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial markets JEL Code(s): G, G0, G01, G2, G23

• Readability and the Bank of Canada

  Staff Analytical Note 2018-20 Alexandre Deslongchamps

  In this note, I assess the readability of Bank of Canada publications using a formula commonly used for this type of evaluation. I find that Bank publications are more difficult to read than the media articles and other content our target audiences likely consume. This suggests that more simple writing can help the Bank better meet its communication objectives.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Credibility, Monetary policy communications JEL Code(s): D, D8, D83

• The Scale and Scope of Online Retail

  Staff Analytical Note 2018-19 Alex Chernoff

  This paper studies the growth of online retail over the period 1999–2012, using confidential firm-product-level data for Canada. The revenue of online retailers is decomposed into the contributions of product scope (the number of product categories) and product scale (average revenue per product category).

  Content Type(s): Staff research, Staff analytical notes Topic(s): Digital currencies and fintech, Firm dynamics, International topics JEL Code(s): D, D2, D22, L, L1, L11, L8, L81

• Interest Rate and Renewal Risk for Mortgages

  Staff Analytical Note 2018-18 Olga Bilyk, Cameron MacDonald, Brian Peterson

  In this note, we explore two types of risk faced by holders of mortgages and home equity lines of credit (HELOCs) in the context of rising interest rates: interest rate risk and renewal risk.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Credit and credit aggregates, Financial institutions, Interest rates, Recent economic and financial developments JEL Code(s): D, D1, E, E4, E5, G, G2, G21, G28

• Measuring Vulnerabilities in the Non-Financial Corporate Sector Using Industry- and Firm-Level Data

  Staff Analytical Note 2018-17 Timothy Grieder, Michal Lipsitz

  Aggregate non-financial corporate debt-to-GDP has been growing rapidly in recent years and is at an all-time high. This growth began in 2011 and accelerated as the oil price shock affected the Canadian economy.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Financial stability, Monetary and financial indicators, Recent economic and financial developments, Sectoral balance sheet JEL Code(s): G, G0, G01, G3, G32

• Applying the Wage-Common to Canadian Provinces

  Staff Analytical Note 2018-16 Jonathan Lachaine

  As at the national level, available sources of hourly wage data for Canadian provinces sometimes send conflicting signals about wage growth. This note has two objectives. First, we develop a common measure of provincial wages (the provincial wage-common) to better capture the underlying wage pressures, reflecting the overall trend across all data sources.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Econometric and statistical methods, Labour markets, Recent economic and financial developments JEL Code(s): C, C3, C38, J, J3

• Bending the Curves: Wages and Inflation

  Staff Analytical Note 2018-15 Dany Brouillette, Madigan Dockrill, Helen Lao, Laurence Savoie-Chabot

  As economic slack continues to be absorbed and the labour market tightens, wage growth and inflation could increase faster than expected, which would suggest convexity in their Phillips curves. This note investigates whether there is convexity in the Phillips curves for Canadian wage growth and inflation by testing different empirical approaches over the post-inflation-targeting period.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Inflation and prices, Labour markets JEL Code(s): E, E2, E24, E3, E31, J, J3

• How do Canadian Corporate Bond Mutual Funds Meet Investor Redemptions?

  Staff Analytical Note 2018-14 Guillaume Ouellet Leblanc, Rohan Arora

  When investors redeem their fund shares for cash, fixed-income fund managers can choose whether to draw on their liquid holdings or sell bonds in the secondary market. We analyze the liquidity-management decisions of Canadian corporate bond mutual funds, focusing on the strategies they use to meet investor redemptions.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23

• The Share of Systematic Variations in the Canadian Dollar—Part III

  Staff Analytical Note 2018-13 Guillaume Nolin, James Kyeong, Jean-Sébastien Fontaine

  We draw a parallel between the dramatic increases of systematic variations in exchange rates and international bank lending. We find that when a country’s currency has a larger share of systematic variations, lending flows by international banks to that country become more sensitive to global lending - they also become more systematic. This parallel is particularly prevalent for large commodity exporters, including Canada. Global financial intermediation may open a new channel between the real economy and exchange rates.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Exchange rates JEL Code(s): F, F3, F31

• Customer Liquidity Provision in Canadian Bond Markets

  Staff Analytical Note 2018-12 Corey Garriott, Jesse Johal

  This analytical note assesses the prevalence of liquidity provision by institutional investors in Canadian bonds. We find that the practice is not prevalent in Canada. Customer liquidity provision is more prevalent for less liquid bonds, on days when liquidity is already expensive or when there are larger trading volumes. In our interpretation, Canadian dealers draw on customer liquidity as a supplementary source of liquidity and only when necessary, given its cost.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial markets, Financial system regulation and policies, Market structure and pricing, Recent economic and financial developments JEL Code(s): G, G1, G14, G2, G20, L, L1