Staff working papers
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Monetary Policy and the Persistent Aggregate Effects of Wealth Redistribution
Monetary policy in the presence of nominal debt and labour supply heterogeneity creates a policy trade-off: a short-term economic stimulus leads to persistently reduced output over the medium term. Price-level targeting weakens this trade-off and is better able to stabilize inflation and output than inflation targeting. -
Estimating Large-Dimensional Connectedness Tables: The Great Moderation Through the Lens of Sectoral Spillovers
Understanding the size of sectoral links is crucial to predicting the impact of a crisis on the whole economy. We show that statistical learning techniques substantially outperform traditional estimation techniques when measuring large networks of these links. -
Tariffs and the Exchange Rate: Evidence from Twitter
Do tariffs affect exchange rates? We look at President Trump’s tweets during talks on the North American Free Trade Agreement and find that anticipation of higher tariffs on imports from Canada and Mexico led to an appreciation of the US dollar relative to Canadian and Mexican currency. -
Stressed but not Helpless: Strategic Behaviour of Banks Under Adverse Market Conditions
Our stress-testing tool considers banks under stress that can strategically manage their balance sheets. Using confidential Canadian supervisory data, we assess whether bank behaviour to maximize shareholder value can amplify a hypothetical stress scenario. -
The Side Effects of Safe Asset Creation
The secular decline in real interest rates has created a challenge for monetary policy, now confronting the zero lower bound more often. An increase in the supply of safe assets reduces downward pressure on the natural interest rate. This allows monetary policy to reach price stability and full employment, but not without cost—permanently lower investment. -
The Anatomy of Sentiment-Driven Fluctuations
We show that changes in sentiment that aren’t related to fundamentals can drive persistent macroeconomic fluctuations even when all economic agents are rational. Changes in sentiment can also affect how fundamental shocks affect macroeconomic outcomes. -
The Effects of Government Licensing on E-commerce: Evidence from Alibaba
How does government licensing affect selling on online platforms? We examine the impact of China’s 2015 Food Safety Law on sellers and buyers on Alibaba, the largest e-commerce platform in that country. -
An Optimal Macroprudential Policy Mix for Segmented Credit Markets
How can macroprudential policy and monetary policy stabilize segmented credit markets? Is there a trade-off between financial stability and price stability? I use a theoretical model to evaluate the performance of alternative policies and find the optimal mix of macroprudential and monetary policy in response to aggregate shocks. -
Bank Runs, Bank Competition and Opacity
How is the stability of the financial sector affected by competition in the deposit market and by decisions banks make about transparency? We find that policies that aim to increase bank competition lead to higher bank deposit rates, increasing both withdrawal incentives and instability.