Posts

• November 28, 2017

  Financial System Review - November 2017

  

  This issue of the Financial System Review reflects the Bank’s judgment that the high level of household indebtedness and housing market imbalances remain the most important vulnerabilities. While these vulnerabilities are still elevated, improving economic conditions and recent changes to housing policy should support an easing of these vulnerabilities over time. A third vulnerability highlighted in the FSR concerns cyber threats and the interconnectedness of the financial system.

  Content Type(s): Publications, Financial Stability Report

• The Impacts of Monetary Policy Statements

  Staff Analytical Note 2017-22 Bruno Feunou, Corey Garriott, James Kyeong, Raisa Leiderman

  In this note, we find that market participants react to an unexpected change in the tone of Canadian monetary policy statements. When the market perceives that the Bank of Canada plans to tighten (or alternatively, loosen) the monetary policy earlier than previously expected, the Canadian dollar appreciates (or depreciates) and long-term Government of Canada bond yields increase (or decrease). The tone of a statement is particularly relevant to the market when the policy rate has been unchanged for some time.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Asset pricing, Exchange rates, Interest rates, Monetary policy communications, Monetary policy transmission JEL Code(s): E, E4, E43, E5, E52, F, F3, F31, G, G1, G12

• Identifying the Degree of Collusion Under Proportional Reduction

  Staff Working Paper 2017-51 Oleksandr Shcherbakov, Naoki Wakamori

  Proportional reduction is a common cartel practice in which cartel members reduce their output proportionately. We develop a method to quantify this reduction relative to a benchmark market equilibrium scenario and relate the reduction to the traditional conduct parameter.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Market structure and pricing JEL Code(s): C, C3, C36, D, D2, D22, L, L4, L41

• Is the Discretionary Income Effect of Oil Price Shocks a Hoax?

  Staff Working Paper 2017-50 Christiane Baumeister, Lutz Kilian, Xiaoqing Zhou

  The transmission of oil price shocks has been a question of central interest in macroeconomics since the 1970s. There has been renewed interest in this question after the large and persistent fall in the real price of oil in 2014–16. In the context of this debate, Ramey (2017) makes the striking claim that the existing literature on the transmission of oil price shocks is fundamentally confused about the question of how to quantify the effect of oil price shocks.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, International topics JEL Code(s): C, C5, C51, Q, Q4, Q43

• Product Sophistication and the Slowdown in Chinese Export Growth

  Staff Discussion Paper 2017-15 Mark Kruger, Walter Steingress, Sri Thanabalasingam

  Chinese real export growth decelerated considerably during the last decade. This paper argues that the slowdown largely resulted from China moving to a more sophisticated mix of exports: China produced more sophisticated goods over which it had pricing power instead of producing greater volumes of less sophisticated products.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Development economics, Exchange rates, International topics JEL Code(s): F, F1, F14, F17, O, O1, O10

• Evaluating Real GDP Growth Forecasts in the Bank of Canada Monetary Policy Report

  Staff Analytical Note 2017-21 André Binette, Dmitri Tchebotarev

  This paper examines the quality of projections of real GDP growth taken from the Bank of Canada Monetary Policy Report (MPR) since they were first published in 1997. Over the last decade, it has become common practice among the central banking community to discuss forecast performance publicly.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Monetary policy JEL Code(s): C, C5, C52, E, E3, E32, E37, E5, E52

• The Causal Impact of Migration on US Trade: Evidence from Political Refugees

  Staff Working Paper 2017-49 Walter Steingress

  Immigrants can increase international trade by shifting preferences towards the goods of their country of origin and by reducing bilateral transaction costs. Using geographical variation across U.S. states for the period 2008 to 2013, I estimate the respective causal impact of immigrants on U.S. exports and imports.

  Content Type(s): Staff research, Staff working papers Topic(s): International topics, Regional economic developments JEL Code(s): F, F1, F14, F2, F22, J, J6, J61

• Optimal Interbank Regulation

  Staff Working Paper 2017-48 Thomas J. Carter

  Recent years have seen renewed interest in the regulation of interbank markets. A review of the literature in this area identifies two gaps: first, the literature has tended to make ad hoc assumptions about the interbank contract space, which makes it difficult to generate convincing policy prescriptions; second, the literature has tended to focus on ex-post interventions that kick in only after an interbank disruption has come underway (e.g., open-market operations, lender-of-last-resort interventions, bail-outs), rather than ex-ante prudential policies.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Financial system regulation and policies JEL Code(s): G, G0, G01, G2, G20

• Cash Versus Card: Payment Discontinuities and the Burden of Holding Coins

  Staff Working Paper 2017-47 Heng Chen, Kim Huynh, Oz Shy

  Cash is the preferred method of payment for small value transactions generally less than $25. We provide insight to this finding with a new theoretical model that characterizes and compares consumers’ costs of paying with cash to paying with cards for each transaction.

  Content Type(s): Staff research, Staff working papers Topic(s): Bank notes, Econometric and statistical methods JEL Code(s): D, D0, D03, E, E4, E42

• On the Tail Risk Premium in the Oil Market

  Staff Working Paper 2017-46 Reinhard Ellwanger

  This paper shows that changes in market participants’ fear of rare events implied by crude oil options contribute to oil price volatility and oil return predictability. Using 25 years of historical data, we document economically large tail risk premia that vary substantially over time and significantly forecast crude oil futures and spot returns.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods, Financial markets JEL Code(s): C, C5, C53, C58, D, D8, D84, E, E4, E44, G, G1, G12, G13, Q, Q4, Q43