D - Microeconomics

• On the Tail Risk Premium in the Oil Market

  Staff Working Paper 2017-46 Reinhard Ellwanger

  This paper shows that changes in market participants’ fear of rare events implied by crude oil options contribute to oil price volatility and oil return predictability. Using 25 years of historical data, we document economically large tail risk premia that vary substantially over time and significantly forecast crude oil futures and spot returns.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods, Financial markets JEL Code(s): C, C5, C53, C58, D, D8, D84, E, E4, E44, G, G1, G12, G13, Q, Q4, Q43
• November 16, 2017

  Acceptance and Use of Payments at the Point of Sale in Canada

  Bank of Canada Review - Autumn 2017 Ben Fung, Kim Huynh, Anneke Kosse

  Merchants universally accept cash. Consumers widely hold cash but also carry debit and credit cards. The cost of using a method of payment has only a small influence on which method consumers use. Large merchants accept all payments, while only two-thirds of small and medium-sized businesses accept credit cards. Merchants report that credit cards are the costliest payment method compared with cash and debit cards. However, costs are not the only consideration. Merchant acceptance of credit accounts for the many con-sumers that want to use credit cards. This interaction between consumers and merchants is known as network externalities.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Bank notes, Digital currencies and fintech, Financial institutions, Payment clearing and settlement systems JEL Code(s): D, D2, D23, D24, E, E4, E41, E42, G, G2, G21, L, L2

• Digitalization and Inflation: A Review of the Literature

  Staff Analytical Note 2017-20 Karyne B. Charbonneau, Alexa Evans, Subrata Sarker, Lena Suchanek

  In the past few years, many have postulated that the possible disinflationary effects of digitalization could explain the subdued inflation in advanced economies. In this note, we review the evidence found in the literature. We look at three main channels.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Inflation and prices, Market structure and pricing, Productivity JEL Code(s): D, D2, D22, E, E3, E31, L, L8, L81, O, O3, O33

• Digital Transformation in the Service Sector: Insights from Consultations with Firms in Wholesale, Retail and Logistics

  Staff Analytical Note 2017-19 Wei Dong, James Fudurich, Lena Suchanek

  Firms increasingly rely on digital technologies such as e-commerce, cloud computing, big data, digital tracking and digital platforms that are reshaping business operations, business models and market structures. In this context, the Bank of Canada consulted with firms in wholesale, retail and logistics, as well as with related industry associations to yield insights on the adoption of digital technologies.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Firm dynamics, Inflation and prices, Service sector JEL Code(s): D, D2, D22, E, E3, E31, L, L8, L81, L9, L92, O, O3, O33

• Identification of Random Resource Shares in Collective Households Without Preference Similarity Restrictions

  Staff Working Paper 2017-45 Geoffrey R. Dunbar, Arthur Lewbel, Krishna Pendakur

  Resource shares, defined as the fraction of total household spending going to each person in a household, are important for assessing individual material well-being, inequality and poverty. They are difficult to identify because consumption is measured typically at the household level, and many goods are jointly consumed, so that individual-level consumption in multi-person households is not directly observed.

  Content Type(s): Staff research, Staff working papers Topic(s): Domestic demand and components, Econometric and statistical methods JEL Code(s): C, C3, C31, D, D1, D11, D12, D13, I, I3, I32

• What’s Up with Unit Non-Response in the Bank of Canada’s Business Outlook Survey? The Effect of Staff Tenure

  Staff Discussion Paper 2017-11 Sarah Miller, David Amirault, Laurent Martin

  Since 1997, the Bank of Canada’s regional offices have been conducting the Business Outlook Survey (BOS), a quarterly survey of business conditions. Survey responses are gathered through face-to-face, confidential consultations with a sample of private sector firms representative of the various sectors, firm sizes and regions across Canada.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Econometric and statistical methods, Firm dynamics, Regional economic developments JEL Code(s): C, C2, C21, C8, C81, D, D2, D22

• 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

• Understanding Monetary Policy and its Effects: Evidence from Canadian Firms Using the Business Outlook Survey

  Staff Working Paper 2017-24 Matthieu Verstraete, Lena Suchanek

  This paper shows (i) that business sentiment, as captured by survey data, matters for monetary policy decisions in Canada, and (ii) how business perspectives are affected by monetary policy shocks. Measures of business sentiment (soft data) are shown to have systematic explanatory power for monetary policy decisions over and above typical Taylor rule variables.

  Content Type(s): Staff research, Staff working papers Topic(s): Firm dynamics, Interest rates, Monetary policy transmission JEL Code(s): D, D2, D22, E, E4, E44, E5, E52
• May 11, 2017

  The Digital Economy

  Bank of Canada Review - Spring 2017 Chris D'Souza, David Williams

  Digital technologies—cloud computing, the Internet of Things, advanced robotics, big data analytics, artificial intelligence and machine learning, social media, 3D printing, augmented reality, virtual reality, e-money and distributed ledgers—are transforming the way busi-nesses operate. How does this transformation compare with past industrial revolutions? How are digital technologies changing production systems across industries? Agile firms that use knowledge intensively and have high levels of both organizational and human capital appear set to realize the greatest benefits from digitalization. Finally, what are the implications for productivity, labour markets, inflation and monetary policy as we transition to the digital economy?

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Firm dynamics, Monetary policy, Productivity JEL Code(s): D, D2, D24, L, L1, L10, O, O1, O3, O33
• May 11, 2017

  Why Is Global Business Investment So Weak? Some Insights from Advanced Economies

  Bank of Canada Review - Spring 2017 Robert Fay, Justin-Damien Guénette, Martin Leduc, Louis Morel

  Various drivers of business investment can be used to explain the underwhelming performance of investment in advanced economies since the global financial crisis, particularly since 2014. The slow growth in aggregate demand cannot by itself explain the full extent of the recent weakness in investment, which appears to be linked primarily to the collapse of global commodity prices and a rise in economic uncertainty. Looking ahead, business investment growth is likely to remain slower than in the pre-crisis period, largely because of structural factors such as population aging.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Business fluctuations and cycles, Domestic demand and components, Economic models, International topics, Monetary policy and uncertainty, Recent economic and financial developments JEL Code(s): C, C2, C22, D, D2, D24, D8, D80, E, E2, E22, F, F0, F01, G, G3, G31