Staff research

• March 31, 2024

  Quarterly Research Update – 2024 Q1

  This 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

• Forecasting Recessions in Canada: An Autoregressive Probit Model Approach

  Staff Working Paper 2024-10 Antoine Poulin-Moore, Kerem Tuzcuoglu

  We forecast recessions in Canada using an autoregressive (AR) probit model. The results highlight the short-term predictive power of the US economic activity and suggest that financial indicators are reliable predictors of Canadian recessions. In addition, the suggested model meaningfully improves the ability to forecast Canadian recessions, relative to a variety of probit models proposed in the Canadian literature.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C5, C51, C53, E, E3, E32

• COVID-19 Hasn’t Killed Merchant Acceptance of Cash: Results from the 2023 Merchant Acceptance Survey

  Staff Discussion Paper 2024-2 Angelika Welte, Katrina Talavera, Liang Wang, Joy Wu

  The Bank of Canada’s Merchant Acceptance Survey finds that 96% of small and medium-sized businesses in Canada accepted cash in 2023. Acceptance of debit and credit cards has increased to 89%, and acceptance of digital payments has also increased. However, Canada is far from being a cashless society.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Bank notes, Digital currencies and fintech, Econometric and statistical methods JEL Code(s): C, C8, D, D2, D22, E, E4, L, L2

• CBDC: Banking and Anonymity

  Staff Working Paper 2024-9 Yuteng Cheng, Ryuichiro Izumi

  We examine the optimal amount of user anonymity in a central bank digital currency in the context of bank lending. Anonymity, defined as the lender’s inability to discern an entrepreneur’s actions that enable fund diversion, influences the choice of payment instrument due to its impact on a bank’s lending decisions.

  Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech JEL Code(s): E, E4, E42, E5, E58, G, G2, G28

• Monetary Policy Transmission Through Shadow and Traditional Banks

  Staff Working Paper 2024-8 Amina Enkhbold

  I investigate how monetary policy transmits to mortgage rates via the mortgage market concentration channel for both traditional and shadow banks in the United States from 2009 to 2019. On average, shadow and traditional banks exhibit only a slight disparity in transmitting monetary shocks to mortgage rates.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Interest rates, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E52, G, G2, G21

• Regulation, Emissions and Productivity: Evidence from China’s Eleventh Five-Year Plan

  Staff Working Paper 2024-7 Brantly Callaway, Tong Li, Joel Rodrigue, Yuya Sasaki, Yong Tan

  We study the degree to which China’s 11th Five-Year Plan softens trade-offs between emissions and output. Our model suggests efficient regulation could have further increased aggregate productivity by 3.5% and output by 4.7% without any increase in aggregate emissions.

  Content Type(s): Staff research, Staff working papers Topic(s): Climate change, Productivity JEL Code(s): C, C2, C21, D, D2, D24, Q, Q5, Q53

• What has been putting upward pressure on CORRA?

  Staff Analytical Note 2024-4 Boran Plong, Neil Maru

  From the autumn of 2023 into early 2024, the Canadian Overnight Repo Rate Average (CORRA), a measure of the cost of overnight general collateral Canadian dollar repos, was consistently well above the Bank’s target for the overnight rate. We find that, among several factors, long bond positions that require repo financing are the main driver of the recent upward pressure on CORRA.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Interest rates, Lender of last resort, Monetary policy implementation JEL Code(s): D, D4, D5, D53, E, E4, E43, E44, E5, E52, G, G1, G12

• Decomposing Large Banks’ Systemic Trading Losses

  Staff Working Paper 2024-6 Radoslav Raykov

  Do banks realize simultaneous trading losses because they invest in the same assets, or because different assets are subject to the same macro shocks? This paper decomposes the comovements of bank trading losses into two orthogonal channels: portfolio overlap and common shocks.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability JEL Code(s): G, G1, G10, G11, G2, G20