Financial stability
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Central Bank Communications Before, During and After the Crisis: From Open-Market Operations to Open-Mouth Policy
The days when secrecy and opacity were the bywords of central banking are gone. The advent of inflation targeting in the early 1990s acted as the catalyst for enhanced transparency and communications in the conduct of monetary policy. -
November 14, 2013
Assessing Financial System Vulnerabilities: An Early Warning Approach
This article focuses on a quantitative method to identify financial system vulnerabilities, specifically, an imbalance indicator model (IIM) and its application to Canada. An IIM identifies potential vulnerabilities in a financial system by comparing current economic and financial data with data from periods leading up to past episodes of financial stress. It complements other sources of information - including market intelligence and regular monitoring of the economy - that policy-makers use to assess vulnerabilities. -
The Safety of Government Debt
We examine the safety of government bonds in the presence of Knightian uncertainty amongst financial market participants. In our model, the information insensitivity of government bonds is driven by strategic complementarities across counterparties and the structure of trading relationships. -
The ‘Celtic Crisis’: Guarantees, Transparency and Systemic Liquidity Risk
Bank liability guarantee schemes have traditionally been viewed as costless measures to shore up investor confidence and prevent bank runs. However, as the experiences of some European countries, most notably Ireland, have demonstrated, the credibility and effectiveness of these guarantees are crucially intertwined with the sovereign’s funding risks. -
A Semiparametric Early Warning Model of Financial Stress Events
The authors use the Financial Stress Index created by the International Monetary Fund to predict the likelihood of financial stress events for five developed countries: Canada, France, Germany, the United Kingdom and the United States. -
Countercyclical Bank Capital Requirement and Optimized Monetary Policy Rules
Using BoC-GEM-Fin, a large-scale DSGE model with real, nominal and financial frictions featuring a banking sector, we explore the macroeconomic implications of various types of countercyclical bank capital regulations. Results suggest that countercyclical capital requirements have a significant stabilizing effect on key macroeconomic variables, but mostly after financial shocks. -
Méthodologie de construction de séries de taux de défaut pour l’industrie canadienne
Default rates are series commonly used in stress testing. In Canada, as in many other countries, there are no historical series available for sectoral default rates on bank loans to firms. -
February 21, 2013
Conference Summary: Financial Intermediation and Vulnerabilities
The Bank of Canada’s annual economic conference, held in October 2012, brought together experts from across Canada and around the world to discuss key issues concerning financial intermediation and vulnerabilities. The conference covered such topics as household finances and their relationship to financial stability, as well as bank regulation, securitization and shadow banking. -
Financial Development and the Volatility of Income
This paper presents a general equilibrium model with endogenous collateral constraints to study the relationship between financial development and business cycle fluctuations in a cross-section of economies with different sizes of their financial sector.