Staff working papers

• CANVAS: A Canadian Behavioral Agent-Based Model

  Staff Working Paper 2022-51 Cars Hommes, Mario He, Sebastian Poledna, Melissa Siqueira, Yang Zhang

  The Bank of Canada’s current suite of models faces challenges in addressing network effects that integrate household and firm-level heterogeneity and their behaviours. We develop CANVAS, a Canadian behavioural agent-based model to contribute to the Bank’s next-generation modelling effort. CANVAS improves forecasting performance and expands capacity for model-based scenario analysis.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Econometric and statistical methods, Economic models, Firm dynamics, Inflation and prices JEL Code(s): C, D, D2, D22, D8, D83, E, E1, E17

• Understanding Post-COVID Inflation Dynamics

  Staff Working Paper 2022-50 Martin Harding, Jesper Lindé, Mathias Trabandt

  We propose a macroeconomic model with a nonlinear Phillips curve that has a flat slope when inflationary pressures are subdued and steepens when inflationary pressures are elevated. Our model can generate more sizable inflation surges due to cost-push and demand shocks than a standard linearized model when inflation is high.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Central bank research, Coronavirus disease (COVID-19), Economic models, Inflation and prices, Inflation: costs and benefits, Monetary policy, Monetary policy implementation JEL Code(s): E, E3, E30, E31, E32, E37, E4, E44, E5, E52

• Monetary Policy, Credit Constraints and SME Employment

  Staff Working Paper 2022-49 Julien Champagne, Émilien Gouin-Bonenfant

  We revisit an old question: how do financial constraints affect the transmission of monetary policy to the real economy? To answer this question, we propose a simple empirical strategy that combines firm-level employment and balance sheet data, identified monetary policy shocks and survey data on financing activities.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Econometric and statistical methods, Firm dynamics, Labour markets, Monetary policy JEL Code(s): E, E2, E3, E4, E43, E5, E52, G, G3

• Regulatory Requirements of Banks and Arbitrage in the Post-Crisis Federal Funds Market

  Staff Working Paper 2022-48 Rodney J. Garratt, Sofia Priazhkina

  This paper explains the nature of interest rates in the U.S. federal funds market after the 2007-09 financial crisis. We build a model of the over-the-counter lending market that incorporates new aspects of the financial system: abundance of liquidity, different regulatory standards for banks, and arbitrage opportunities created by limited access to the facility granting interest on excess reserves.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Economic models, Financial institutions, Financial markets, Financial stability, Financial system regulation and policies, Wholesale funding JEL Code(s): E, E4, E42, E5, E58, G, G2, G28

• Are Working Hours Complements in Production?

  Staff Working Paper 2022-47 Lin Shao, Faisal Sohail, Emircan Yurdagul

  Using Canadian matched employer-employee data, we show that working hours of different workers are gross complements in production rather than perfect substitutes, as is typically assumed by macroeconomic models of production.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Labour markets JEL Code(s): E, E2, E23, J, J2, J22, J23, J3, J31

• Stagflation and Topsy-Turvy Capital Flows

  Staff Working Paper 2022-46 Julien Bengui, Louphou Coulibaly

  Unregulated capital flows are likely excessive during a stagflation episode, owing to a macroeconomic externality operating through the economy’s supply side. Inflows raise domestic wages and cause unwelcome upward pressure on firm costs, yet market forces likely generate such inflows. Optimal capital flow management instead requires net outflows.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, International financial markets, International topics, Monetary policy JEL Code(s): D, D6, D62, E, E5, E52, F, F3, F32, F38, F4, F41

• Fiscal Policy in the Age of COVID-19: Does It “Get in All of the Cracks”?

  Staff Working Paper 2022-45 Pierre-Olivier Gourinchas, Şebnem Kalemli-Özcan, Veronika Penciakova, Nicholas Sander

  The COVID-19 pandemic has caused an atypical recession in which some sectors of the economy boomed and others collapsed. This required a unique fiscal policy reaction to both support firms and stimulate activity in sectors with slack. Was fiscal policy able to get where it was needed? Mostly, yes.

  Content Type(s): Staff research, Staff working papers Topic(s): Coronavirus disease (COVID-19), Firm dynamics, Fiscal policy, International topics JEL Code(s): D, D5, D57, E, E6, E62, F, F4, F41

• Private Digital Cryptoassets as Investment? Bitcoin Ownership and Use in Canada, 2016-2021

  Staff Working Paper 2022-44 Daniela Balutel, Walter Engert, Christopher Henry, Kim Huynh, Marcel Voia

  We report on the dynamics of Bitcoin awareness and ownership from 2016 to 2021, using the Bank of Canada's Bitcoin Omnibus Surveys (BTCOS). Our analysis also helps understand Bitcoin owners who adopted during the COVID-19 and how they differ from long-term owners. 

  Content Type(s): Staff research, Staff working papers Topic(s): Bank notes, Digital currencies and fintech, Econometric and statistical methods JEL Code(s): C, C1, C12, E, E4, O, O5, O51

• Grasping De(centralized) Fi(nance) Through the Lens of Economic Theory

  Staff Working Paper 2022-43 Jonathan Chiu, Charles M. Kahn, Thorsten Koeppl

  We analyze the value proposition and limitations of decentralized finance (DeFi). Based on a distributed ledger and smart contracts, DeFi can guarantee the execution of financial contracts, potentially lowering the costs of intermediation and improving financial inclusion.

  Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech, Payment clearing and settlement systems JEL Code(s): G, G2

• Behavioral Learning Equilibria in New Keynesian Models

  Staff Working Paper 2022-42 Cars Hommes, Kostas Mavromatis, Tolga Özden, Mei Zhu

  We introduce behavioral learning equilibria (BLE) into DSGE models with boundedly rational agents using simple but optimal first order autoregressive forecasting rules. The Smets-Wouters DSGE model with BLE is estimated and fits well with inflation survey expectations. As a policy application, we show that learning requires a lower degree of interest rate smoothing.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Economic models, Inflation and prices, Monetary policy JEL Code(s): C, C1, C11, D, D8, D83, D84, E, E3, E6, E62