Staff research, Publications
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September 30, 2018
Research Update - September 2018
This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website. -
September 28, 2018
The benefits of freer trade
Freer trade lowers prices and boosts economies, yet not everyone benefits equally. Fair policies are essential for balanced growth and widespread prosperity. -
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Monetary Policy Uncertainty: A Tale of Two Tails
We document a strong asymmetry in the evolution of federal funds rate expectations and map this observed asymmetry into measures of monetary policy uncertainty. We show that periods of monetary policy tightening and easing are distinctly related to downside (policy rate is higher than expected) and upside (policy rate is lower than expected) uncertainty. -
Have Liquidity and Trading Activity in the Canadian Corporate Bond Market Deteriorated?
Since 2010, the liquidity of corporate bonds has improved on average, while their trading activity has remained stable. We find that the liquidity and trading activity of riskier bonds or bonds issued by firms in different sectors have been stable. However, the liquidity and trading activity of bonds issued by banks have improved. We observe short-lived episodes of deterioration in liquidity and trading activity. -
Financial Development Beyond the Formal Financial Market
This paper studies the effects of financial development, taking into account both formal and informal financing. Using cross-country firm-level data, we document that informal financing is utilized more by rich countries than poor countries. -
Government of Canada Fixed-Income Market Ecology
This discussion paper is the third in the Financial Markets Department’s series on the structure of Canadian financial markets. These papers are called “ecologies” because they study the interactions among market participants, infrastructures, regulations and the terms of the traded contract itself.
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Have Liquidity and Trading Activity in the Canadian Provincial Bond Market Deteriorated?
In recent years, the liquidity in the secondary market for Canadian provincial bonds was a concern for many market participants. We find that a proxy for the bid-ask spread has deteriorated modestly since 2010. However, a proxy for price impact as well as measures of trade size, the number of trades and turnover have been stable or improved since 2010. This holds for bonds issued by different provinces and for bonds of different ages and sizes. Alberta bonds provide an interesting case study: After the fall in oil prices in 2014–15, the province increased its borrowing in the bond market and its credit rating was downgraded. Yet trading activity for Alberta bonds increased significantly. Overall, we interpret the evidence as a sign of resilience in the provincial bond market. -
Should Bank Capital Regulation Be Risk Sensitive?
We present a simple model to study the risk sensitivity of capital regulation. A banker funds investment with uninsured deposits and costly capital, where capital resolves a moral hazard problem in the banker’s choice of risk.