E4 - Money and Interest Rates

• COVID-19 Hasn’t Killed Merchant Acceptance of Cash: Results from the 2023 Merchant Acceptance Survey

  Staff Discussion Paper 2024-2 Angelika Welte, Katrina Talavera, Liang Wang, Joy Wu

  The Bank of Canada’s Merchant Acceptance Survey finds that 96% of small and medium-sized businesses in Canada accepted cash in 2023. Acceptance of debit and credit cards has increased to 89%, and acceptance of digital payments has also increased. However, Canada is far from being a cashless society.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Bank notes, Digital currencies and fintech, Econometric and statistical methods JEL Code(s): C, C8, D, D2, D22, E, E4, L, L2

• CBDC: Banking and Anonymity

  Staff Working Paper 2024-9 Yuteng Cheng, Ryuichiro Izumi

  We examine the optimal amount of user anonymity in a central bank digital currency in the context of bank lending. Anonymity, defined as the lender’s inability to discern an entrepreneur’s actions that enable fund diversion, influences the choice of payment instrument due to its impact on a bank’s lending decisions.

  Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech JEL Code(s): E, E4, E42, E5, E58, G, G2, G28

• Monetary Policy Transmission Through Shadow and Traditional Banks

  Staff Working Paper 2024-8 Amina Enkhbold

  I investigate how monetary policy transmits to mortgage rates via the mortgage market concentration channel for both traditional and shadow banks in the United States from 2009 to 2019. On average, shadow and traditional banks exhibit only a slight disparity in transmitting monetary shocks to mortgage rates.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Interest rates, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E52, G, G2, G21

• What has been putting upward pressure on CORRA?

  Staff Analytical Note 2024-4 Boran Plong, Neil Maru

  From the autumn of 2023 into early 2024, the Canadian Overnight Repo Rate Average (CORRA), a measure of the cost of overnight general collateral Canadian dollar repos, was consistently well above the Bank’s target for the overnight rate. We find that, among several factors, long bond positions that require repo financing are the main driver of the recent upward pressure on CORRA.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Interest rates, Lender of last resort, Monetary policy implementation JEL Code(s): D, D4, D5, D53, E, E4, E43, E44, E5, E52, G, G1, G12

• How changes in the share of constrained households affect the effectiveness of monetary policy

  Staff Analytical Note 2024-3 Felipe Alves, Sushant Acharya

  We measure how the change in the share of constrained households in Canada following the COVID-19 recession has impacted the effectiveness of monetary policy.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Coronavirus disease (COVID-19), Monetary policy transmission JEL Code(s): E, E2, E21, E4, E40, E5, E50

• The Role of International Financial Integration in Monetary Policy Transmission

  Staff Working Paper 2024-3 Jing Cynthia Wu, Yinxi Xie, Ji Zhang

  We propose an open-economy New Keynesian model with financial integration that allows financial intermediaries to hold foreign long-term bonds. We study the implications of financial integration on monetary policy transmission. Among various aspects of financial integration, the bond duration plays a major role. These results hold for conventional and unconventional monetary policies.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, International financial markets, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E52, F, F3, F36, F4, F42

• 2022 Methods-of-Payment Survey Report: Cash Use Over 13 Years

  Staff Discussion Paper 2024-1 Christopher Henry, Doina Rusu, Matthew Shimoda

  We present results from the 2022 Methods-of-Payment Survey, including updated payment shares based on a three-day shopping diary. We also assess various factors associated with long-term trends in cash use.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Bank notes, Coronavirus disease (COVID-19), Digital currencies and fintech, Financial services JEL Code(s): D, D8, D83, E, E4, E41

• Modelling Canadian mortgage debt and payments in a semi-structural model

  Staff Analytical Note 2024-1 Fares Bounajm, Austin McWhirter

  We show how Canadian mortgage debt dynamics can be modelled in a semi-structural macroeconomic model, such as the Bank of Canada’s LENS. The model we propose accounts for Canada’s unique mortgage debt structure.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Economic models, Monetary policy transmission JEL Code(s): E, E2, E27, E4, E43, E47, G, G5, G51

• Monetary Policy and Racial Inequality in Housing Markets: A Study of 140 US Metropolitan Areas

  Staff Working Paper 2023-62 Qi Li, Xu Zhang

  We find that minority households see greater declines in housing returns and entries into homeownership than White households after a tightening of monetary policy. Our findings emphasize the unintended consequences of monetary policy on racial inequality in the housing market.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Housing, Monetary policy JEL Code(s): E, E4, E40, E5, E52, R, R0, R00

• The impact of higher interest rates on mortgage payments

  Staff Analytical Note 2023-19 Maria teNyenhuis, Adam Su

  We investigate how the increase in interest rates since early 2022 is affecting mortgage payments. By November 2023, less than half of mortgage holders had faced higher payments. Many borrowers will see a sizable increase in payments at renewal, although income growth could help mitigate the impact.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Credit and credit aggregates, Financial institutions, Interest rates, Recent economic and financial developments JEL Code(s): D, D1, E, E4, E5, G, G2, G21