E4 - Money and Interest Rates
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How Long is Forever in the Laboratory? Three Implementations of an Infinite-Horizon Monetary Economy
Standard monetary models adopt an infinite horizon with discounting. Testing these models in the lab requires implementing this horizon within a limited time frame. We compare three approaches to such an implementation and discuss their relative advantages. -
Secular Economic Changes and Bond Yields
We investigate the economic forces behind the secular decline in bond yields. Before the anchoring of inflation in the mid-1990s, nominal shocks drove inflation, output and bond yields. Afterward, the impacts of nominal shocks were much less significant. -
Imperfect Banking Competition and Macroeconomic Volatility: A DSGE Framework
How do banks adjust their loan rate markup in response to macroeconomic shocks? -
Cash and COVID-19: The Effects of Lifting Containment Measures on Cash Demand and Use
Using Bank Note Distribution System data on the demand for cash up to September 2020, we find that demand was strong. This is true even though cash use for payments declined early in the pandemic. When mobility restrictions and lockdown measures were eased, cash use for payments increased sharply but remained less popular than electronic methods of payment. -
COVID-19 Crisis: Lessons Learned for Future Policy Research
One year later, we review the events that took place in Canadian fixed-income markets at the beginning of the COVID-19 crisis and propose potential policy research questions for future work. -
Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in Canada and the United States
Although credit cards are more expensive for merchants to accept than cash or debit cards, merchants typically pass through their costs evenly to all customers. Along with consumer card rewards and banking fees, this creates cross-subsidies between payment methods. Because higher-income individuals tend to use credit cards more than those with lower incomes, our results indicate that these cross-subsidies might lead to regressive distributional effects. -
Estimating Policy Functions in Payments Systems Using Reinforcement Learning
We demonstrate the ability of reinforcement learning techniques to estimate the best-response functions of banks participating in high-value payments systems—a real-world strategic game of incomplete information. -
Eggs in One Basket: Security and Convenience of Digital Currencies
Digital currencies store balances in anonymous electronic addresses. This paper analyzes the trade-offs between the safety and convenience of aggregating balances in addresses, electronic wallets and banks. -
Networking the Yield Curve: Implications for Monetary Policy
We study how different monetary policies affect the yield curve and interact. Our study highlights the importance of the spillover structure across the yield curve for policy-making.