Bio

Zhentong Lu is a Principal Researcher in the Financial Stability Department (FSD). His main research areas are applied econometrics, empirical economics and finance.

Staff analytical notes

Three things we learned about the Lynx payment system

Staff Analytical Note 2023-14 Nikil Chande, Zhentong Lu, Hiru Rodrigo, Phoebe Tian
Canada transitioned to a new wholesale payment system, Lynx, in August 2021. Lynx is based on a real-time settlement model that eliminates credit risk in the system. This model can require more liquidity; however, Lynx’s design allows Canada’s wholesale payments to settle efficiently.
Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial services, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C1, C10, E, E4, E42, G, G2, G28

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Staff working papers

Flagship Entry in Online Marketplaces

Staff Working Paper 2023-41 Ginger Zhe Jin, Zhentong Lu, Xiaolu Zhou, Lu Fang
In this paper, we empirically study how flagship entry in an online marketplace affects consumers, the platform, and various sellers on the platform. We find flagship entry may benefit consumers by expanding the choice set, by intensifying price competition within the entry brand, and by improving consumer perception for parts of the platform.
Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Market structure and pricing JEL Code(s): D, D4, L, L1, L8

How Banks Create Gridlock to Save Liquidity in Canada's Large Value Payment System

Staff Working Paper 2023-26 Rodney J. Garratt, Zhentong Lu, Phoebe Tian
We show how participants in Canada’s new high-value payment system save liquidity by exploiting the new gridlock resolution arrangement. The findings have important implications for the design of these systems and shed light on financial institutions’ liquidity preference.
Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E58, G, G2, G21

From LVTS to Lynx: Quantitative Assessment of Payment System Transition

Staff Working Paper 2023-24 Ajit Desai, Zhentong Lu, Hiru Rodrigo, Jacob Sharples, Phoebe Tian, Nellie Zhang
We quantitatively assess the changes in participants’ payment behaviour from modernizing Canada's high-value payments system to Lynx. Our analysis suggests that Lynx's liquidity-saving mechanism encourages liquidity pooling and early payments submission, resulting in improved efficiency for participants but with slightly increased payment delays.
Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C1, C10, E, E4, E42, G, G2, G28

Transmission of Cyber Risk Through the Canadian Wholesale Payment System

Staff Working Paper 2022-23 Anneke Kosse, Zhentong Lu
This paper studies how the impact of a cyber attack that paralyzes one or multiple banks' ability to send payments would transmit to other banks through the Canadian wholesale payment system. Based on historical payment data, we simulate a wide range of scenarios and evaluate the total payment disruption in the system.
Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability, Payment clearing and settlement systems JEL Code(s): C, C4, C49, E, E4, E42, E47, G, G2, G21

Quantifying the Economic Benefits of Payments Modernization: the Case of the Large-Value Payment System

Staff Working Paper 2021-64 Neville Arjani, Fuchun Li, Zhentong Lu
Canada is undertaking a major initiative to modernize its payments ecosystem. The modernized ecosystem is expected to bring significant benefits to Canadian financial markets and the overall economy. We develop an empirical framework to quantify the economic benefits of modernizing the payment system in Canada.
Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C3, E, E4, E42, G, G1, G2, G28

Measuring the Effectiveness of Salespeople: Evidence from a Cold-Drink Market

Staff Working Paper 2021-40 Haofeng Jin, Zhentong Lu
Salespeople are widely employed in many industries. We leverage a unique data set on retail sales from a leading Chinese cold-drink manufacturer and information on the firm’s salespeople assignment rule to measure the causal effect of salespeople on product revenue.
Content Type(s): Staff research, Staff working papers Topic(s): Labour markets, Service sector JEL Code(s): L, L8, L81, M, M3, M5

The Effects of Government Licensing on E-commerce: Evidence from Alibaba

Staff Working Paper 2021-32 Ginger Zhe Jin, Zhentong Lu, Xiaolu Zhou, Chunxiao Li
How does government licensing affect selling on online platforms? We examine the impact of China’s 2015 Food Safety Law on sellers and buyers on Alibaba, the largest e-commerce platform in that country.
Content Type(s): Staff research, Staff working papers Topic(s): Market structure and pricing, Recent economic and financial developments JEL Code(s): D, D8, D82, K, K2, K23, L, L5, L8, L81

Examining the Impact of Home Purchase Restrictions on China’s Housing Market

Staff Working Paper 2021-18 Zhentong Lu, Sisi Zhang, Jian Hong
How do “cooling measures” in the housing market—policies aimed to stabilize prices—affect the market? We use a structural model of housing demand and price competition among developers to evaluate China’s home purchase restriction policies implemented in 2010–11.
Content Type(s): Staff research, Staff working papers Topic(s): Housing, Market structure and pricing JEL Code(s): O, O1, O18, R, R3, R31, R38

Predicting Payment Migration in Canada

Staff Working Paper 2020-37 Anneke Kosse, Zhentong Lu, Gabriel Xerri
Developments are underway to replace Canada’s two core payment systems with three new systems. We use a discrete choice model to predict migration patterns of end-users and financial institutions for future systems and discuss their policy implications.
Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services, Financial stability, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C3, E, E4, E42, G, G1, G2, G28

An Economic Perspective on Payments Migration

Staff Working Paper 2020-24 Anneke Kosse, Zhentong Lu, Gabriel Xerri
Consumers, businesses and banks make millions of payments each day using a variety of instruments, such as debit cards, cheques and wires. Canada is currently developing three new systems to process these transactions: Lynx, Settlement Optimization Engine (SOE) and Real-Time Rail (RTR).
Content Type(s): Staff research, Staff working papers Topic(s): Financial services, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): E, E4, E42, G, G2, G21

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Journal publications

  • “From LVTS to Lynx: Quantitative Assessment of Payment System Transition” (with Ajit Desai, Hiru Rodrigo, Jacob Sharples, Phoebe Tian and Nellie Zhang), accepted by Journal of Payments Strategy & Systems.
  • “Transmission of Cyber Risk Through the Canadian Wholesale Payment System” (with Anneke Kosse), accepted by Journal of Financial Market Infrastructures.
  • “Quantifying the economic benefits of payment modernization: the case of the large-value payment system” (with Neville Arjani and Fuchun Li), Journal of Financial Market Infrastructures, March 2023.
  • “Semi-Nonparametric Estimation of Random Coefficient Logit Model for Aggregate Demand” (with Xiaoxia Shi and Jing Tao), Journal of Econometrics, August 2023.
  • “Estimating Demand for Differentiated Products with Zeroes in Market Share Data” (with Amit Gandhi and Xiaoxia Shi), Quantitative Economics, May 2023.
  • “Estimating Multinomial Choice Models with Unobserved Choice Sets,” Journal of Econometrics, February 2022.
  • “The Effects of Government Licensing on E-Commerce: Evidence from Alibaba” (with Ginger Zhe Jin, Xiaolu Zhou, Chunxiao Li), Journal of Law and Economics, February 2022.
  • “Not too much nor too little: Salience bias in mobile plan choices” (with Haofeng Jin, Liqiang Huang and Junsheng Dou), Telecommunications Policy, May 2021.
  • “Examining the Impact of Home Purchase Restrictions on China’s Housing Market”, (with Jian Hong and Sisi Zhang), China Economic Review, June 2021.
  • “Predicting Payment Migration in Canada”, (with Anneke Kosse and Gabriel Xerri), Journal of Financial Market Infrastructures, March 2021.