Staff working papers

• When Lower Risk Increases Profit: Competition and Control of a Central Counterparty

  Staff Working Paper 2012-35 Jean-Sébastien Fontaine, Héctor Pérez Saiz, Joshua Slive

  We model the behavior of dealers in Over-the-Counter (OTC) derivatives markets where a small number of dealers trade with a continuum of heterogeneous clients (hedgers). Imperfect competition and (endogenous) default induce a familiar trade-off between competition and risk.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial stability, Financial system regulation and policies JEL Code(s): G, G1, G10, G18

• The Economic Value of Realized Volatility: Using High-Frequency Returns for Option Valuation

  Staff Working Paper 2012-34 Peter Christoffersen, Bruno Feunou, Kris Jacobs, Nour Meddahi

  Many studies have documented that daily realized volatility estimates based on intraday returns provide volatility forecasts that are superior to forecasts constructed from daily returns only. We investigate whether these forecasting improvements translate into economic value added.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods JEL Code(s): G, G1, G13

• Financial Conditions and the Money-Output Relationship in Canada

  Staff Working Paper 2012-33 Maral Kichian

  We propose a drifting-coefficient model to empirically study the effect of money on output growth in Canada and to examine the role of prevailing financial conditions for that relationship. We show that such a time-varying approach can be a useful way of modelling the impact of money on growth, and can partly reconcile the lack of concensus in the literature on the question of whether money affects growth.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Monetary aggregates JEL Code(s): E, E4, E44, E5, E51

• China’s Emergence in the World Economy and Business Cycles in Latin America

  Staff Working Paper 2012-32 Ambrogio Cesa-Bianchi, M. Hashem Pesaran, Alessandro Rebucci, TengTeng Xu

  The international business cycle is very important for Latin America’s economic performance as the recent global crisis vividly illustrated. This paper investigates how changes in trade linkages between China, Latin America, and the rest of the world have altered the transmission mechanism of international business cycles to Latin America.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods, International topics, Recent economic and financial developments, Regional economic developments JEL Code(s): C, C3, C32, E, E3, E32, F, F4, F44, O, O5, O54

• The Evolution of Canada’s Global Export Market Share

  Staff Working Paper 2012-31 Daniel de Munnik, Jocelyn Jacob, Wesley Sze

  Following gains during the 1990s, Canada’s global market share of goods exports has declined markedly in recent years. In this regard, the constant market share analysis framework is used to decompose changes in Canada’s global market share into competitiveness and structural effects over the 1990‐2010 period, as well as to draw some comparisons to a number of other countries.

  Content Type(s): Staff research, Staff working papers Topic(s): Balance of payments and components, Exchange rates, International topics JEL Code(s): F, F1, F10, F14, F4, F43

• Price Negotiation in Differentiated Products Markets: Evidence from the Canadian Mortgage Market

  Staff Working Paper 2012-30 Jason Allen, Robert Clark, Jean-François Houde

  This paper measures market power in a decentralized market where contracts are determined through a search and negotiation process. The mortgage industry has many institutional features which suggest competitiveness: homogeneous contracts, negotiable rates, and, for a given consumer, common lending costs across lenders.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services, Market structure and pricing JEL Code(s): D, D4, G, G2, G21, L, L2, L22

• Efficiency and Bargaining Power in the Interbank Loan Market

  Staff Working Paper 2012-29 Jason Allen, James Chapman, Federico Echenique, Matthew Shum

  Using detailed loan transactions-level data we examine the efficiency of an overnight interbank lending market, and the bargaining power of its participants. Our analysis relies on the equilibrium concept of the core, which imposes a set of no-arbitrage conditions on trades in the market.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Payment clearing and settlement systems JEL Code(s): C, C7, C71, E, E5, E58, G, G2, G21, G28

• What Drags and Drives Mobility: Explaining Canada’s Aggregate Migration Patterns

  Staff Working Paper 2012-28 David Amirault, Daniel de Munnik, Sarah Miller

  Using census data at the economic region level from 1991 to 2006 and a gravity model framework, this paper examines the factors that influence migration within Canada.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Labour markets, Regional economic developments JEL Code(s): J, J6, J61, R, R2, R23

• Systematic Risk, Debt Maturity and the Term Structure of Credit Spreads

  Staff Working Paper 2012-27 Hui Chen, Yu Xu, Jun Yang

  We build a dynamic capital structure model to study the link between systematic risk exposure and debt maturity, as well as their joint impact on the term structure of credit spreads. Our model allows for time variation and lumpiness in the maturity structure. Relative to short-term debt, long-term debt is less prone to rollover risks, but its illiquidity raises the costs of financing.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Debt management JEL Code(s): G, G3, G32, G33

• Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks

  Staff Working Paper 2012-26 Naoaki Minamihashi

  Can regulation solve problems arising from a natural monopoly? This paper analyzes whether “unbundling,” referring to regulations that enforce sharing of natural monopolistic infrastructure, prevents entrants from building new infrastructure.

  Content Type(s): Staff research, Staff working papers Topic(s): Market structure and pricing, Productivity JEL Code(s): K, K2, K23, L, L4, L43, L9, L96