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November 14, 2013

Fragmentation in Canadian Equity Markets

Changes in technology and regulation have resulted in an increasing number of trading venues in equity markets in Canada. New trading platforms have intensified price competition and have encouraged innovation, and they do not appear to have segmented trade. But the increasingly complex market structure has necessitated investments in expensive technology and has introduced new operational risks. Regulatory responses should be carefully adapted to retain the competition and innovation associated with this market fragmentation.

Measuring Uncertainty in Monetary Policy Using Implied Volatility and Realized Volatility

Staff Working Paper 2013-37 Bo Young Chang, Bruno Feunou
We measure uncertainty surrounding the central bank’s future policy rates using implied volatility computed from interest rate option prices and realized volatility computed from intraday prices of interest rate futures.

ToTEM II: An Updated Version of the Bank of Canada’s Quarterly Projection Model

This report provides a detailed technical description of an updated version of the Terms-of-Trade Economic Model (ToTEM II), which replaced ToTEM (Murchison and Rennison 2006) in June 2011 as the Bank of Canada’s quarterly projection model for Canada.
Content Type(s): Staff research, Technical reports Topic(s): Business fluctuations and cycles, Economic models JEL Code(s): E, E1, E17, E2, E20, E3, E30, E4, E40, E5, E50, F, F4, F41

The Common Component of CPI: An Alternative Measure of Underlying Inflation for Canada

Staff Working Paper 2013-35 Mikael Khan, Louis Morel, Patrick Sabourin
In this paper, the authors propose a measure of underlying inflation for Canada obtained from estimating a monthly factor model on individual components of the CPI. This measure, labelled the common component of CPI, has intuitive appeal and a number of interesting features.

The Safety of Government Debt

Staff Working Paper 2013-34 Kartik Anand, Prasanna Gai
We examine the safety of government bonds in the presence of Knightian uncertainty amongst financial market participants. In our model, the information insensitivity of government bonds is driven by strategic complementarities across counterparties and the structure of trading relationships.

Which Parametric Model for Conditional Skewness?

Staff Working Paper 2013-32 Bruno Feunou, Mohammad R. Jahan-Parvar, Roméo Tedongap
This paper addresses an existing gap in the developing literature on conditional skewness. We develop a simple procedure to evaluate parametric conditional skewness models. This procedure is based on regressing the realized skewness measures on model-implied conditional skewness values.
Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods JEL Code(s): C, C2, C22, C5, C51, G, G1, G12, G15

The ‘Celtic Crisis’: Guarantees, Transparency and Systemic Liquidity Risk

Staff Working Paper 2013-31 Philipp König, Kartik Anand, Frank Heinemann
Bank liability guarantee schemes have traditionally been viewed as costless measures to shore up investor confidence and prevent bank runs. However, as the experiences of some European countries, most notably Ireland, have demonstrated, the credibility and effectiveness of these guarantees are crucially intertwined with the sovereign’s funding risks.
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