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Is the Excess Bond Premium a Leading Indicator of Canadian Economic Activity?

Staff Analytical Note 2018-4 Maxime Leboeuf, Daniel Hyun
This note investigates whether Canadian corporate spreads and the excess bond premium (EBP) lead Canadian economic activity. Indeed, we find that corporate spreads precede changes in real gross domestic product (GDP) in Canada over the subsequent year. The EBP accounts for most of this property. Further, an unanticipated increase in the Canadian EBP forecasts a deterioration of domestic macroeconomic conditions: a 10-basis-point increase results in a fall in both GDP and consumer price index (CPI) of 0.4 per cent and 0.1 per cent, respectively, over three years.

The “Too Big to Fail” Subsidy in Canada: Some Estimates

Staff Working Paper 2018-9 Patricia Palhau Mora
Implicit government guarantees of banking-sector liabilities reduce market discipline by private sector stakeholders and temper the risk sensitivity of funding costs. This potentially increases the likelihood of bailouts from taxpayers, especially in the absence of effective resolution frameworks.

High-Frequency Trading and Institutional Trading Costs

Staff Working Paper 2018-8 Marie Chen, Corey Garriott
Using data on Canadian bond futures, we examine how high-frequency traders (HFTs) interact with institutions building large positions. In contrast to recent findings, we find HFTs in the data act as small-sized liquidity suppliers, and we reject the hypothesis that they engage in back running, a predatory trading strategy.

Adverse Selection with Heterogeneously Informed Agents

Staff Working Paper 2018-7 Mohammad Davoodalhosseini
A model of over-the-counter markets is proposed. Some asset buyers are informed in that they can identify high quality assets. Heterogeneous sellers with private information choose what type of buyers they want to trade with.

Home Equity Extraction and the Boom-Bust Cycle in Consumption and Residential Investment

Staff Working Paper 2018-6 Xiaoqing Zhou
The consumption boom-bust cycle in the 2000s coincided with large fluctuations in the volume of home equity borrowing. Contrary to conventional wisdom, I show that homeowners largely borrowed for residential investment and not consumption.

Government of Canada Securities in the Cash, Repo and Securities Lending Markets

Staff Discussion Paper 2018-4 Narayan Bulusu, Sermin Gungor
This paper documents the properties of Government of Canada securities in cash, repo and securities lending transactions over their life cycle. By tracking every security from issuance to maturity, we are able to highlight inter-linkages between the markets for cash and for specific securities.
Content Type(s): Staff research, Staff discussion papers Topic(s): Financial markets, Wholesale funding JEL Code(s): G, G1, G12, G2, G21, G23

What Drives Interbank Loans? Evidence from Canada

Staff Working Paper 2018-5 Narayan Bulusu, Pierre Guérin
We identify the drivers of unsecured and collateralized loan volumes, rates and haircuts in Canada using the Bayesian model averaging approach to deal with model uncertainty. Our results suggest that the key friction driving behaviour in this market is the collateral reallocation cost faced by borrowers.
Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Wholesale funding JEL Code(s): C, C5, C55, E, E4, E43, G, G2, G23

A Calibrated Model of Intraday Settlement

Staff Discussion Paper 2018-3 Héctor Pérez Saiz, Siddharth Untawala, Gabriel Xerri
This paper estimates potential exposures, netting benefits and settlement gains by merging retail and wholesale payments into batches and conducting multiple intraday settlements in this hypothetical model of a single "calibrated payments system." The results demonstrate that credit risk exposures faced by participants in the system are largely dependent on their relative activity in the retail and wholesale payments systems.

Non-linéarité de la courbe de Phillips : un survol de la littérature

Staff Analytical Note 2018-3 Renaud St-Cyr
The paper reviews evidence from the economic literature on the nature of the relationship between excess capacity and inflation, better known as the Phillips curve. In particular, we examine the linearity of this relationship. This is an important issue in the current economic context in which advanced economies are approaching or exceed their potential output.
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