C - Mathematical and Quantitative Methods

• Quantifying the Economic Benefits of Payments Modernization: the Case of the Large-Value Payment System

  Staff Working Paper 2021-64 Neville Arjani, Fuchun Li, Zhentong Lu

  Canada is undertaking a major initiative to modernize its payments ecosystem. The modernized ecosystem is expected to bring significant benefits to Canadian financial markets and the overall economy. We develop an empirical framework to quantify the economic benefits of modernizing the payment system in Canada.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C3, E, E4, E42, G, G1, G2, G28

• What to Target? Insights from a Lab Experiment

  Staff Working Paper 2021-53 Isabelle Salle

  In a laboratory experiment, we ask participants to predict inflation using three different policy regimes: inflation targeting—with and without greater communication of the target—average inflation targeting and price level targeting. We use participants’ predictions to compare the level and stability of inflation under each regime.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets, Monetary policy communications, Monetary policy framework JEL Code(s): C, C9, C92, E, E3, E31, E5, E52, E7

• Covariates Hiding in the Tails

  Staff Working Paper 2021-45 Milian Bachem, Lerby Ergun, Casper G. de Vries

  We characterize the bias in cross-sectional Hill estimates caused by common underlying factors and propose two simple-to-implement remedies. To test for the presence, direction and size of the bias, we use monthly US stock returns and annual US Census county population data.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods JEL Code(s): C, C0, C01, C1, C14, C5, C58

• Can the characteristics of new mortgages predict borrowers’ financial stress? Insights from the 2014 oil price decline

  Staff Analytical Note 2021-22 Olga Bilyk, Ken Chow, Yang Xu

  We study the relationship between characteristics of new mortgages and borrowers’ financial stress in Canada’s energy-intensive regions following the 2014 collapse in oil prices. We find that borrowers with limited home equity were more likely to have difficulty repaying debt.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Credit and credit aggregates, Econometric and statistical methods, Financial stability, Housing JEL Code(s): C, C2, C25, D, D1, D14, G, G2, G21, G5, G51, R, R2, R21

• Rising US LNG Exports and Global Natural Gas Price Convergence

  Staff Discussion Paper 2021-14 Robert Ialenti

  We assess how rising exports of US liquefied natural gas affect the convergence of natural gas prices worldwide. Our results may have implications for the development of future LNG export capacity in Canada.

  Content Type(s): Staff research, Staff discussion papers Topic(s): International topics, Market structure and pricing JEL Code(s): C, C3, C32, F, F1, F15, K, K4, K41, L, L9, L95

• Payment Habits During COVID-19: Evidence from High-Frequency Transaction Data

  Staff Working Paper 2021-43 Tatjana Dahlhaus, Angelika Welte

  We examine how consumers have adjusted their payment habits during the COVID-19 pandemic. They seem to perform fewer transactions, spend more in each transaction, use less cash at the point of sale and withdraw cash from ATMs linked to their financial institution more often than from other ATMs.

  Content Type(s): Staff research, Staff working papers Topic(s): Coronavirus disease (COVID-19), Domestic demand and components, Payment clearing and settlement systems, Recent economic and financial developments JEL Code(s): C, C2, C22, C5, C55, D, D1, D12, E, E2, E21, E4, E42, E5, E52

• Household financial vulnerabilities and physical climate risks

  Staff Analytical Note 2021-19 Thibaut Duprey, Colin Jones, Callie Symmers, Geneviève Vallée

  Natural disasters occur more often than before, potentially exposing households to financial distress. We study the intersection between household financial vulnerabilities and severe weather events.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Climate change, Credit and credit aggregates, Financial stability, Housing, Recent economic and financial developments JEL Code(s): C, C2, C21, C3, C38, D, D1, D14, Q, Q5, Q54

• Estimating Large-Dimensional Connectedness Tables: The Great Moderation Through the Lens of Sectoral Spillovers

  Staff Working Paper 2021-37 Felix Brunner, Ruben Hipp

  Understanding the size of sectoral links is crucial to predicting the impact of a crisis on the whole economy. We show that statistical learning techniques substantially outperform traditional estimation techniques when measuring large networks of these links.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C2, C22, C5, C52, E, E2, E23, E27

• Cash and COVID-19: The impact of the second wave in Canada

  Staff Discussion Paper 2021-12 Heng Chen, Walter Engert, Marie-Hélène Felt, Kim Huynh, Gradon Nicholls, Daneal O’Habib, Julia Zhu

  The COVID-19 pandemic significantly increased the demand for cash. Cash in circulation increased sharply from March through December 2020, particularly in the early months of this period. Although use of electronic methods of payment also increased significantly, cash use for payments remains high for low-value transactions and among certain demographic groups.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Bank notes, Central bank research, Coronavirus disease (COVID-19), Digital currencies and fintech, Econometric and statistical methods JEL Code(s): C, C1, C12, C9, E, E4, O, O5, O54

• Stressed but not Helpless: Strategic Behaviour of Banks Under Adverse Market Conditions

  Staff Working Paper 2021-35 Grzegorz Halaj, Sofia Priazhkina

  Our stress-testing tool considers banks under stress that can strategically manage their balance sheets. Using confidential Canadian supervisory data, we assess whether bank behaviour to maximize shareholder value can amplify a hypothetical stress scenario.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Economic models, Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): C, C6, C63, C7, C72, G, G2, G21