Staff research

• Are Bank Bailouts Welfare Improving?

  Staff Working Paper 2021-56 Malik Shukayev, Alexander Ueberfeldt

  Financial sector bailouts, while potentially beneficial during a crisis, might lead to excessive risk taking if anticipated. Taking expectations and aggregate risk implications into account, we show that bailouts can be welfare improving, but only if capital adequacy constraints are sufficiently tight.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): D, D6, D62, E, E3, E32, E4, E44, G, G0, G01

• Optimal Monetary Policy According to HANK

  Staff Working Paper 2021-55 Sushant Acharya, Edouard Challe, Keshav Dogra

  We study optimal monetary policy in an analytically tractable Heterogeneous Agent New Keynesian model. In the model, the central bank has an incentive to reduce consumption inequality in addition to keeping economic activity at its efficient level and inflation stable.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Monetary policy JEL Code(s): E, E2, E21, E3, E30, E5, E52, E6, E62, E63

• Evaluating the Effects of Forward Guidance and Large-scale Asset Purchases

  Staff Working Paper 2021-54 Xu Zhang

  I propose a novel method to identify and estimate the macroeconomic effects of forward guidance and large-scale asset purchases (LSAP) for each FOMC announcement. I find that LSAP is more important than forward guidance in influencing output and inflation. LSAP puts upward pressure on short-term yields, so it should always be used in conjunction with forward guidance.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Central bank research, Econometric and statistical methods, Interest rates JEL Code(s): E, E5, G, G0
• October 31, 2021

  Research Update - October 2021

  This monthly 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

• 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

• What Can Stockouts Tell Us About Inflation? Evidence from Online Micro Data

  Staff Working Paper 2021-52 Alberto Cavallo, Oleksiy Kryvtsov

  Did supply disruptions and cost pressures play a role in rising inflation in 2020 during the COVID-19 pandemic? Using data collected from websites of large retailers in multiple sectors and countries, we show that shortages may indicate transitory inflationary pressures.

  Content Type(s): Staff research, Staff working papers Topic(s): Coronavirus disease (COVID-19), Inflation and prices JEL Code(s): D, D2, D22, E, E3, E31, E37

• Fiscal and Monetary Stabilization Policy at the Zero Lower Bound: Consequences of Limited Foresight

  Staff Working Paper 2021-51 Michael Woodford, Yinxi Xie

  How do outcomes of monetary and fiscal stabilization policies at the zero lower bound change when decision makers have finite planning horizons in the economy? We explore the effects of limited foresight on policy tools and the interaction between monetary and fiscal policy.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Central bank research, Fiscal policy, Monetary policy JEL Code(s): E, E5, E52, E6, E63, E7

• The impact of the Bank of Canada’s Government Bond Purchase Program

  Staff Analytical Note 2021-23 Rohan Arora, Sermin Gungor, Joe Nesrallah, Guillaume Ouellet Leblanc, Jonathan Witmer

  We assess the response of Government of Canada bond yields to the Bank of Canada’s initial announcement of the Government Bond Purchase Program (GBPP) as well as to the Bank’s later GBPP purchase operations.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Monetary policy, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E5, E52, E58, E6, E63

• Systemic Risk and Portfolio Diversification: Evidence from the Futures Market

  Staff Working Paper 2021-50 Radoslav Raykov

  This paper explores how the Canadian futures market contributed to banks’ systemic risk during the 2008 financial crisis. It finds that core banks as a whole traded against the periphery, in this way increasing their risk of simultaneous losses.

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

• Job Applications and Labour Market Flows

  Staff Working Paper 2021-49 Serdar Birinci, Kurt See, Shu Lin Wee

  Although the number of job applications has risen, job-finding rates remain relatively unchanged while job-separation rates have significantly declined. Rather than raising the probability of finding a job, we find that a rise in applications raises the probability of finding a good match, as evidenced by the decline in separation rates.

  Content Type(s): Staff research, Staff working papers Topic(s): Labour markets, Productivity JEL Code(s): E, E2, E24, J, J6, J63, J64