E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit

• Estimating the Portfolio-Balance Effects of the Bank of Canada’s Government of Canada Bond Purchase Program

  Staff Working Paper 2024-34 Antonio Diez de los Rios

  Using a novel dynamic portfolio balance model of the yield curve for Government of Canada bonds, I find that the Bank of Canada’s Government of Canada Bond Purchase Program reduced Canadian 10-year and 5-year zero-coupon yields by 84 and 52 basis points, respectively.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Central bank research, Coronavirus disease (COVID-19), Interest rates, Monetary policy JEL Code(s): E, E4, E43, E5, E52, G, G1, G12, H, H6, H63

• Evaluating the portfolio balance effects of the Government of Canada Bond Purchase Program on the Canadian yield curve

  Staff Analytical Note 2024-22 Antonio Diez de los Rios

  The Bank of Canada’s Government of Canada Bond Purchase Program, launched in response to the COVID-19 pandemic, lowered the weighted average maturity of the Government of Canada’s debt by approximately 1.4 years. This in turn reduced Canadian 10-year and 5-year zero-coupon yields by 84 and 52 basis points, respectively.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Asset pricing, Central bank research, Coronavirus disease (COVID-19), Interest rates, Monetary policy JEL Code(s): E, E4, E43, E5, E52, G, G1, G12, H, H6, H63

• Monetary Policy Governance: Bank of Canada Practices to Support Policy Effectiveness

  Staff Discussion Paper 2024-14 Brigitte Desroches, Sharon Kozicki, Laure Simon

  We examine different monetary policy governance structures and discuss the important roles of non-legislated processes and practices. We also provide an update on monetary policy governance at the Bank of Canada and how it has evolved over time.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Credibility, Monetary policy communications, Monetary policy framework JEL Code(s): E, E0, E02, E5, E58

• Ecosystem Models for a Central Bank Digital Currency: Analysis Framework and Potential Models

  Staff Discussion Paper 2024-13 Youming Liu, Francisco Rivadeneyra, Edona Reshidi, Oleksandr Shcherbakov, André Stenzel

  This note analyzes different economic models of a central bank digital currency (CBDC) ecosystem where the central bank chooses different levels of market involvement and usage of policy levers. The analysis suggests that there are trade-offs between the costs to the central bank and its ability to achieve policy goals like universal access.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Central bank research, Digital currencies and fintech, Financial services JEL Code(s): E, E5, E58, E6, E61, L, L5

• CORRA: Explaining the rise in volumes and resulting upward pressure

  Staff Analytical Note 2024-21 Boran Plong, Neil Maru

  On May 27, 2024, the settlement period for trading GoC bonds in the secondary market in Canada moved from two days to one. This shortened time for settling secondary cash bond trades caused CORRA volumes to rise significantly, and they have remained elevated since. This combined with the skew in demand for funding has pressured CORRA higher. We find no indications that any other factors are contributing to the most recent pressures on CORRA.

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

• Central Bank Digital Currency and Transmission of Monetary Policy

  Staff Working Paper 2024-27 Saroj Bhattarai, Mohammad Davoodalhosseini, Zhenning Zhao

  How does the transmission of monetary policy change when a central bank digital currency (CBDC) is introduced in the economy? Does CBDC design matter? We study these questions in a general equilibrium model with nominal rigidities, liquidity frictions, and a banking sector where commercial banks face a leverage constraint.

  Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech, Interest rates, Monetary policy, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E3, E31, E4, E5, E50, E58, G, G2, G21, G5, G51

• The reliance of Canadians on credit card debt as a predictor of financial stress

  Staff Analytical Note 2024-18 Jia Qi Xiao

  I analyze the relationship between carrying a credit card balance and future financial stress. I find that carrying a balance significantly increases the likelihood that credit card holders miss future debt payments. This likelihood tends to rise as credit card balances grow and are held for long periods.

  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

• The Role of Public Money in the Digital Age

  Staff Discussion Paper 2024-11 Francisco Rivadeneyra, Scott Hendry, Alejandro García

  A well-functioning monetary system is characterized by public and private forms of money that exchange at par as value flows freely between them. A relevant retail public money—whether in the form of cash, a central bank digital currency or both—is a necessary component of such a monetary system.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Central bank research, Digital currencies and fintech, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E50, E58

• Analysis of DeFi Oracles

  Staff Discussion Paper 2024-10 Xun Deng, Sidi Mohamed Beillahi, Cyrus Minwalla, Han Du, Andreas Veneris, Fan Long

  Oracles are constructs used in decentralized finance to price assets relative to each other. However, oracles contain defects that could lead to manipulation attacks. Such attacks exploit pricing models embedded within oracles to defraud creators and users. We automatically verify defects, which if mitigated, improves the security of digital currency.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Central bank research, Digital currencies and fintech, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E51, G, G1, G15, O, O3, O31

• The Output-Inflation Trade-off in Canada

  Staff Discussion Paper 2024-7 Stefano Gnocchi, Fanny McKellips, Rodrigo Sekkel, Laure Simon, Yinxi Xie, Yang Zhang

  We explain how the Bank of Canada’s policy models capture the trade-off between output and inflation in Canada. We provide new estimates of the trade-off and contrast them with those in the Bank’s macroeconomic models.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Inflation and prices, Monetary policy transmission JEL Code(s): E, E3, E31, E5, E52