Staff research

• December 31, 2020

  Research Update - December 2020

  This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.

  Content Type(s): Staff research, Research newsletters

• Consumer Credit with Over-optimistic Borrowers

  Staff Working Paper 2020-57 Florian Exler, Igor Livshits, James (Jim) C. MacGee, Michèle Tertilt

  When lenders cannot directly identify behavioural and rational borrowers, they use type scoring to track the likelihood of a borrower’s type. This leads to the partial pooling of borrowers, which results in rational borrowers subsidizing borrowing costs for behavioural borrowers. This, in turn, reduces the effectiveness of regulatory policies that target mistakes by behavioural borrowers.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Credit risk management, Financial system regulation and policies JEL Code(s): E, E2, E21, E4, E49, G, G1, G18, K, K3, K35

• Losing Contact: The Impact of Contactless Payments on Cash Usage

  Staff Working Paper 2020-56 Marie-Hélène Felt

  Contactless payment cards are a competitive alternative to cash. Using Canadian panel data from 2010 to 2017, this study investigates whether contactless credit cards are an important contributor to the decline in the transactional use of cash. 

  Content Type(s): Staff research, Staff working papers Topic(s): Bank notes, Digital currencies and fintech, Econometric and statistical methods, Financial services JEL Code(s): C, C3, C33, D, D1, D12, E, E4, E41

• Implementation and Effectiveness of Extended Monetary Policy Tools: Lessons from the Literature

  Staff Discussion Paper 2020-16 Grahame Johnson, Sharon Kozicki, Romanos Priftis, Lena Suchanek, Jonathan Witmer, Jing Yang

  This paper summarizes the literature on the performance of various extended monetary policy tools when conventional policy rates are constrained by the effective lower bound. We highlight issues that may arise when these tools are used by central banks of small open economies.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Monetary policy, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E5, E52, E58, E6, E63

• A Reference Guide for the Business Outlook Survey

  Staff Discussion Paper 2020-15 David Amirault, Naveen Rai, Laurent Martin

  The Business Outlook Survey (BOS) has become an important part of monetary policy deliberations at the Bank of Canada and is also well known in Canadian policy and financial circles. This paper compiles more than 20 years of experience conducting the BOS and serves as a comprehensive reference manual.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Firm dynamics, Regional economic developments JEL Code(s): C, C8, C83, D, D2, D22, E, E3, E32

• Strategic Uncertainty in Financial Markets: Evidence from a Consensus Pricing Service

  Staff Working Paper 2020-55 Lerby Ergun, Andreas Uthemann

  We look at the informational content of consensus pricing in opaque over-the-counter markets. We show that the availability of price data informs participants mainly about other participants’ valuations, rather than about the value of a financial security.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Market structure and pricing JEL Code(s): C, C5, C58, D, D5, D53, D8, D83, G, G1, G12, G14

• Labor Market Policies During an Epidemic

  Staff Working Paper 2020-54 Serdar Birinci, Fatih Karahan, Yusuf Mercan, Kurt See

  We study the labour market and welfare effects of expanding unemployment insurance benefits and introducing payroll subsidies during the COVID-19 pandemic. We find that both policies are complementary and are beneficial to different types of workers. Payroll subsidies preserve the employment of workers in highly productive jobs, while unemployment insurance replaces lost income for workers who experience inevitable job loss.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Coronavirus disease (COVID-19), Fiscal policy, Labour markets JEL Code(s): E, E2, E24, E6, E62, J, J6, J64

• Can the Business Outlook Survey Help Improve Estimates of the Canadian Output Gap?

  Staff Discussion Paper 2020-14 Calista Cheung, Luke Frymire, Lise Pichette

  We investigate whether questions in the Bank of Canada’s Business Outlook Survey can provide useful signals for the output gap.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Business fluctuations and cycles, Central bank research, Economic models, Monetary policy and uncertainty, Potential output JEL Code(s): E, E3

• Towards a HANK Model for Canada: Estimating a Canadian Income Process

  Staff Discussion Paper 2020-13 Iskander Karibzhanov

  How might one simulate a million realistic income paths and compute their statistical moments in under a second? Using CUDA-based methods to estimate the Canadian earnings process, I find that the distribution of labour income growth is sharply peaked with heavy tails—similar to that in the United States.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Economic models, Labour markets JEL Code(s): D, D3, D31, E, E2, E24, J, J3, J31

• Safe Payments

  Staff Working Paper 2020-53 Jonathan Chiu, Mohammad Davoodalhosseini, Janet Hua Jiang, Yu Zhu

  In a cashless economy, would the private sector invest in the optimal level of safety in a deposit-based payment system? In general, because of externalities, the answer is no. While the private sector could over- or under-invest in safety, the government can use taxes or subsidies to correct private incentives.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Digital currencies and fintech, Financial institutions, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E50, G, G2, G21