G - Financial Economics
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The Impact of Surprising Monetary Policy Announcements on Exchange Rate Volatility
We identify a few Bank of Canada press releases that had the largest immediate impact on the exchange rate market. We find that volatility increases after these releases, but the effect is short-lived and mostly dissipates after the first hour, on average. Beyond the first hour, the size of the effect is similar to what we observe for other economic releases, such as those for inflation or economic growth data. -
Markets Look Beyond the Headline
Many reports and analyses interpret the release of new economic data based on the headline surprise—for instance, total inflation, real GDP growth and the unemployment rate. However, we find that headline news alone cannot adequately explain the responses of market prices to new information. Rather, market prices react more strongly, on average, to non-headline news such as the composition of GDP growth, quality of jobs created and revisions to past data. Thus, tracking the impact of non-headline information released on the news day is crucial in analyzing how markets interpret and react to new economic data. -
Macroprudential FX Regulations: Shifting the Snowbanks of FX Vulnerability?
Can macroprudential foreign exchange (FX) regulations on banks reduce the financial and macroeconomic vulnerabilities created by borrowing in foreign currency? To evaluate the effectiveness and unintended consequences of macroprudential FX regulations, we develop a parsimonious model of bank and market lending in domestic and foreign currency and derive four predictions. -
Modelling the Macrofinancial Effects of a House Price Correction in Canada
We use a suite of risk-assessment models to examine the possible impact of a hypothetical house price correction, centred in the Toronto and Vancouver areas. We also assume financial stress significantly amplifies the macroeconomic impact of the house price decline. -
The Impact of Recent Policy Changes on the Canadian Mortgage Market
Recent policy changes are having a clear impact on the mortgage market. The number of new, highly indebted borrowers has fallen, and overall mortgage activity has slowed significantly. -
The Framework for Risk Identification and Assessment
Risk assessment models are an important component of the Bank’s analytical tool kit for assessing the resilience of the financial system. We describe the Framework for Risk Identification and Assessment (FRIDA), a suite of models developed at the Bank of Canada to quantify the impact of financial stability risks to the broader economy and a range of financial system participants (households, businesses and banks). -
Calibrating the Magnitude of the Countercyclical Capital Buffer Using Market-Based Stress Tests
How much capital do banks need as a buffer to absorb severe shocks? By using historical stock market data, market-based stress tests help estimate the magnitude of capital buffers necessary to absorb severe but plausible shocks. -
Assessing Vulnerabilities in Emerging-Market Economies
This paper introduces a new tool to monitor economic and financial vulnerabilities in emerging-market economies. We obtain vulnerability indexes for several early warning indicators covering 26 emerging markets from 1990 to 2017 and use them to monitor the evolution of vulnerabilities before, during and after an economic or financial crisis. -
Characterizing the Canadian Financial Cycle with Frequency Filtering Approaches
In this note, I use two multivariate frequency filtering approaches to characterize the Canadian financial cycle by capturing fluctuations in the underlying variables with respect to a long-term trend. The first approach is a dynamically weighted composite, and the second is a stochastic cycle model.