E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment

• Benchmarks for assessing labour market health: 2023 update

  Staff Analytical Note 2023-7 Erik Ens, Kurt See, Corinne Luu

  We enhance benchmarks for assessing strength in the Canadian labour market. We find the labour market remains tight despite recent strong increases in labour supply, including among prime-working-age women. We also assess the anticipated easing in labour conditions in a context of high population growth.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Coronavirus disease (COVID-19), Econometric and statistical methods, Labour markets, Monetary policy JEL Code(s): E, E2, E24, J, J2, J21, J6

• Potential output and the neutral rate in Canada: 2023 assessment

  Staff Analytical Note 2023-6 Julien Champagne, Christopher Hajzler, Dmitry Matveev, Harlee Melinchuk, Antoine Poulin-Moore, Galip Kemal Ozhan, Youngmin Park, Temel Taskin

  We expect that potential output growth will rebound from 1.4% in 2022 to 2.2% on average between 2023 and 2026. We revised down our estimates of growth over 2022–25 relative to the April 2022 assessment. The Canadian nominal neutral rate remains unchanged—in the range of 2% to 3%.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Economic models, Interest rates, Labour markets, Monetary policy, Potential output, Productivity JEL Code(s): E, E2, E3, E4, E5

• Assessing global potential output growth and the US neutral rate: April 2023

  Staff Analytical Note 2023-5 Salma Ahmed, Aviel Avshalumov, Tania Chaar, Eshini Ekanayake, Helen Lao, Louis Poirier, Jenna Rolland-Mills, Argyn Toktamyssov, Lin Xiang

  We expect global potential output growth to increase from 2.5% in 2022 to 2.8% by 2026. Compared with the April 2022 staff assessment, global potential output growth is marginally slower. The current range for the US neutral rate is 2% to 3%, unchanged from the last annual assessment.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Interest rates, Monetary policy, Potential output, Productivity JEL Code(s): E, E1, E2, E4, E5, F, F0, O, O4

• The Impact of Unemployment Insurance and Unsecured Credit on Business Cycles

  Staff Working Paper 2023-22 Michael Irwin

  This paper studies how unsecured consumer credit impacts the extent to which unemployment insurance (UI) policies smooth aggregate consumption fluctuations over the business cycle. Using a general equilibrium real business cycle model, I find that unsecured credit amplifies the extent to which UI smooths cyclical consumption fluctuations.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Economic models, Fiscal policy, Labour markets JEL Code(s): E, E2, E21, E24, E3, E32, E4, E44, E6, E62

• Demographic Origins of the Decline in Labor’s Share

  Staff Working Paper 2023-20 Andrew Glover, Jacob Short

  Declining labour market dynamism of workers results in an increasing wedge between their earnings and their marginal product as they age. This wedge and the demographic shift in the earnings shares of older workers can account for 59% of the decline in labor’s share of earnings in the United States.

  Content Type(s): Staff research, Staff working papers Topic(s): Labour markets, Productivity JEL Code(s): D, D3, D33, E, E2, E25, J, J1, J3, J6, J62

• Persistent Debt and Business Cycles in an Economy with Production Heterogeneity

  Staff Working Paper 2023-17 Aubhik Khan, Soyoung Lee

  We examine the role of debt in amplifying and propagating recessions. Firms’ debt adjustment makes recessions deeper but makes expansions gradual. In particular, when the aggregate business leverage is ten percentage points above average, the half-life of the recovery doubles.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Firm dynamics, Productivity JEL Code(s): E, E2, E23, E3, E30, E32

• The Canadian Neutral Rate of Interest through the Lens of an Overlapping-Generations Model

  Staff Discussion Paper 2023-5 Martin Kuncl, Dmitry Matveev

  We use a small open economy model with overlapping generations to evaluate secular dynamics of the neutral rate in Canada from 1980 to 2018. We find that changes in both foreign and domestic factors resulted in a protracted decline in the neutral rate.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Economic models, Interest rates, Monetary policy JEL Code(s): E, E2, E21, E22, E4, E43, E5, E50, E52, E58, F, F4, F41

• Fiscal Stimulus and Skill Accumulation over the Life Cycle

  Staff Working Paper 2023-9 Laure Simon

  Using micro data from the U.S. Consumer Expenditure Survey and Current Population Survey, I document that government spending shocks affect individuals differently over the life cycle.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Fiscal policy, Productivity JEL Code(s): D, D1, D12, D15, E, E2, E21, E6, E62, J, J1, J11, J2, J24

• Gazing at r-star: A Hysteresis Perspective

  Staff Working Paper 2023-5 Paul Beaudry, Katya Kartashova, Césaire Meh

  Many explanations for the decline in real interest rates over the last 30 years point to the role that population aging or rising income inequality plays in increasing the long-run aggregate demand for assets. Notwithstanding the importance of such factors, the starting point of this paper is to show that the major change driving household asset demand over this period is instead an increased desire—for a given age and income level—to hold assets.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Fiscal policy, Inflation and prices, Inflation targets, Interest rates, Monetary policy, Monetary policy framework JEL Code(s): E, E2, E21, E3, E31, E4, E43, E5, E52, E58, E6, E62, G, G5, G51, H, H6

• Macroeconomic Disasters and Consumption Smoothing: International Evidence from Historical Data

  Staff Working Paper 2023-4 Lorenzo Pozzi, Barbara Sadaba

  Does consumption smoothing fundamentally decrease during macroeconomic disasters? This paper uses a large historical dataset (1870–2016) for 16 industrial economies to show that during macroeconomic disasters (e.g., wars, pandemics, depressions) aggregate consumption and income are significantly less decoupled than during normal times.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Coronavirus disease (COVID-19), Econometric and statistical methods JEL Code(s): C, C2, C23, E, E2, E21