E4 - Money and Interest Rates
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Democratic Political Economy of Financial Regulation
We offer a theory of how inefficiently lax financial regulation could arise in a democratic society. -
Discount Rates, Debt Maturity, and the Fiscal Theory
Do bond risk premiums influence the effects of debt maturity operations? Using a model with realistic bond risk premiums, we show that maturity operations have sizable effects on expected inflation and output when the central bank passively responds to inflation and the fiscal authority weakly responds to the debt level. -
Are Bank Bailouts Welfare Improving?
Financial sector bailouts, while potentially beneficial during a crisis, might lead to excessive risk taking if anticipated. Taking expectations and aggregate risk implications into account, we show that bailouts can be welfare improving, but only if capital adequacy constraints are sufficiently tight. -
A Q-Theory of Banks
Using stock market data on banks, we show that the book value of loans recognizes losses with a delay. This delayed accounting is important for regulation because the requirements regulators impose are based on book values. -
Payment Habits During COVID-19: Evidence from High-Frequency Transaction Data
We examine how consumers have adjusted their payment habits during the COVID-19 pandemic. They seem to perform fewer transactions, spend more in each transaction, use less cash at the point of sale and withdraw cash from ATMs linked to their financial institution more often than from other ATMs. -
The Bank of Canada’s “Horse Race” of Alternative Monetary Policy Frameworks: Some Interim Results from Model Simulations
Bank of Canada staff are running a “horse race” of alternative monetary policy frameworks in the lead-up to 2021 renewal of the Bank’s monetary policy framework. This paper summarizes some interim results of model simulations from their research. -
Cash and COVID-19: The impact of the second wave in Canada
The COVID-19 pandemic significantly increased the demand for cash. Cash in circulation increased sharply from March through December 2020, particularly in the early months of this period. Although use of electronic methods of payment also increased significantly, cash use for payments remains high for low-value transactions and among certain demographic groups. -
The Positive Case for a CBDC
We discuss the competition and innovation arguments for issuing a central bank digital currency (CBDC). A CBDC could be an effective competition policy tool for payments. A CBDC could also support the vibrancy of the digital economy. It could help solve market failures and foster competition and innovation in new digital payments markets. -
Sequencing Extended Monetary Policies at the Effective Lower Bound
In this analysis, we use simulations in the Bank of Canada’s projection model—the Terms-of-Trade Economic Model—to consider a suite of extended monetary policies to support the economy following the COVID-19 crisis.