Business fluctuations and cycles

• Does Unconventional Monetary and Fiscal Policy Contribute to the COVID Inflation Surge in the US?

  Staff Working Paper 2024-38 Jing Cynthia Wu, Yinxi Xie, Ji Zhang

  We assess whether unconventional monetary and fiscal policy implemented in response to the COVID-19 pandemic in the U.S. contribute to the 2021-2023 inflation surge through the lens of several different empirical methodologies and establish a null result.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Central bank research, Fiscal policy, Inflation and prices, Monetary policy JEL Code(s): E, E3, E31, E5, E52, E6, E63

• The Output-Inflation Trade-off in Canada

  Staff Discussion Paper 2024-7 Stefano Gnocchi, Fanny McKellips, Rodrigo Sekkel, Laure Simon, Yinxi Xie, Yang Zhang

  We explain how the Bank of Canada’s policy models capture the trade-off between output and inflation in Canada. We provide new estimates of the trade-off and contrast them with those in the Bank’s macroeconomic models.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Inflation and prices, Monetary policy transmission JEL Code(s): E, E3, E31, E5, E52

• Endogenous Credibility and Wage-Price Spirals

  Staff Working Paper 2024-14 Olena Kostyshyna, Tolga Özden, Yang Zhang

  We quantitively assess the risks of a wage-price spiral occurring in Canada over history. We find the risk of a wage-price spiral increases when the inflation expectations become unanchored and the credibility of central banks declines.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credibility, Inflation and prices, Monetary policy JEL Code(s): C, C2, C22, E, E0, E00, E4, E47, E7

• Benchmarks for assessing labour market health: 2024 update

  Staff Analytical Note 2024-8 Erik Ens, Alexander Lam, Kurt See, Gabriela Galassi

  We assess the health of the Canadian labour market. We find that it has seen gradual but material easing since 2023, amid some signs of structural changes.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Labour markets, Monetary policy JEL Code(s): E, E2, J, J2, J3, J6

• 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

• How Do Agents Form Macroeconomic Expectations? Evidence from Inflation Uncertainty

  Staff Working Paper 2024-5 Tao Wang

  The uncertainty regarding inflation that is observed in density forecasts of households and professionals helps macroeconomists understand the formation mechanism of inflation expectations. Shocks to inflation take time to be perceived by all agents in the economy, and such rigidity is lower in a high-inflation environment.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Inflation and prices, Monetary policy and uncertainty JEL Code(s): D, D8, D84, E, E3, E31, E7, E71

• Perceived versus Calibrated Income Risks in Heterogeneous-Agent Consumption Models

  Staff Working Paper 2023-59 Tao Wang

  Perceived income risks reported in a survey of consumer expectations are more heterogeneous and, on average, lower than indirectly calibrated risks based on panel data. They prove to be one explanation for why a large fraction of households hold very little liquid savings and why accumulated wealth is widely unequal across households.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Monetary policy, Monetary policy and uncertainty JEL Code(s): D, D1, D14, E, E2, E21, E7, E71, G, G5, G51

• Finding the balance—measuring risks to inflation and to GDP growth

  Staff Analytical Note 2023-18 Bruno Feunou, James Kyeong

  Using our new quantitative tool, we show how the risks to the inflation and growth outlooks have evolved over the course of 2023.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C3, C32, C5, C58, E, E4, E44, G, G1, G17

• Labor Market Shocks and Monetary Policy

  Staff Working Paper 2023-52 Serdar Birinci, Fatih Karahan, Yusuf Mercan, Kurt See

  We develop a heterogeneous-agent New Keynesian model featuring a frictional labor market with on-the-job search to quantitatively study the positive and normative implications of employer-to-employer transitions for inflation.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Inflation and prices, Labour markets, Monetary policy JEL Code(s): E, E1, E12, E2, E24, E5, E52, J, J3, J31, J6, J62, J64

• Should Banks Be Worried About Dividend Restrictions?

  Staff Working Paper 2023-49 Josef Schroth

  A regulator would want to restrict dividends to force banks to rebuild capital during a crisis. But such a policy is not time-consistent. A time-consistent policy would let banks gradually rebuild capital and pay dividends even when their equity remains below pre-crisis levels.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Credit risk management, Financial stability, Financial system regulation and policies, Lender of last resort JEL Code(s): E, E1, E13, E3, E32, E4, E44