Staff research

• Do Canadian Broker-Dealers Act as Agents or Principals in Bond Trading?

  Staff Analytical Note 2017-11 Daniel Hyun, Jesse Johal, Corey Garriott

  Technology, risk tolerance and regulation may influence dealers to reduce their trading as principals (using their own balance sheets for sales and purchases of securities) in favour of agency trading (matching client trades).

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial markets, Financial system regulation and policies, Market structure and pricing, Recent economic and financial developments JEL Code(s): G, G1, G14, G2, G20, L, L1

• Did the Renewable Fuel Standard Shift Market Expectations of the Price of Ethanol?

  Staff Working Paper 2017-35 Christiane Baumeister, Reinhard Ellwanger, Lutz Kilian

  It is commonly believed that the response of the price of corn ethanol (and hence of the price of corn) to shifts in biofuel policies operates in part through market expectations and shifts in storage demand, yet to date it has proved difficult to measure these expectations and to empirically evaluate this view.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets, Recent economic and financial developments JEL Code(s): Q, Q1, Q18, Q2, Q28, Q4, Q42, Q5, Q58
• August 31, 2017

  Research Update - August 2017

  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

• Cross-Border Bank Flows and Monetary Policy: Implications for Canada

  Staff Working Paper 2017-34 Ricardo Correa, Teodora Paligorova, Horacio Sapriza, Andrei Zlate

  Using the Bank for International Settlements (BIS) Locational Banking Statistics data on bilateral bank claims from 1995 to 2014, we analyze the impact of monetary policy on cross-border bank flows. We find that monetary policy in a source country is an important determinant of cross-border bank flows.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Monetary policy JEL Code(s): F, F3, F34, F36, G, G0, G01

• Optimal Estimation of Multi-Country Gaussian Dynamic Term Structure Models Using Linear Regressions

  Staff Working Paper 2017-33 Antonio Diez de los Rios

  This paper proposes a novel asymptotic least-squares estimator of multi-country Gaussian dynamic term structure models that is easy to compute and asymptotically efficient, even when the number of countries is relatively large—a situation in which other recently proposed approaches lose their tractability.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods, Exchange rates, Interest rates JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G12, G15

• Has Liquidity in Canadian Government Bond Markets Deteriorated?

  Staff Analytical Note 2017-10 Sermin Gungor, Jun Yang

  This note presents measures of liquidity used by the Bank of Canada to monitor market conditions and discusses recent trends in Government of Canada (GoC) fixed-income market liquidity. Our results indicate that the Bank’s measures have improved since the financial crisis. Furthermore, GoC market liquidity deteriorated following several stressful events: the euro crisis in 2011, the taper tantrum in 2013 and the oil price shock in 2015. In all three cases, the deterioration remained within historical norms and liquidity returned to normal levels afterwards.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets JEL Code(s): G, G1, G12, G14

• How to Predict Financial Stress? An Assessment of Markov Switching Models

  Staff Working Paper 2017-32 Benjamin Klaus, Thibaut Duprey

  This paper predicts phases of the financial cycle by using a continuous financial stress measure in a Markov switching framework. The debt service ratio and property market variables signal a transition to a high financial stress regime, while economic sentiment indicators provide signals for a transition to a tranquil state.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Central bank research, Econometric and statistical methods, Financial markets, Financial stability, Financial system regulation and policies, Monetary and financial indicators JEL Code(s): C, C5, C54, G, G0, G01, G1, G15

• Downward Nominal Wage Rigidity in Canada: Evidence Against a “Greasing Effect”

  Staff Working Paper 2017-31 Joel Wagner

  The existence of downward nominal wage rigidity (DNWR) has often been used to justify a positive inflation target. It is traditionally assumed that positive inflation could “grease the wheels” of the labour market by putting downward pressure on real wages, easing labour market adjustments during a recession.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets, Labour markets JEL Code(s): E, E2, E24, E5, E52
• July 31, 2017

  Research Update - July 2017

  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

• Retrieving Implied Financial Networks from Bank Balance-Sheet and Market Data

  Staff Working Paper 2017-30 Jose Fique

  In complex and interconnected banking systems, counterparty risk does not depend only on the risk of the immediate counterparty but also on the risk of others in the network of exposures.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability JEL Code(s): C, C6, C63, D, D8, D85, G, G2, G21