Using Exchange-Traded Funds to Measure Liquidity in the Canadian Corporate Bond Market Staff Analytical Note 2019-25 Rohan Arora, Guillaume Ouellet Leblanc, Jabir Sandhu, Jun Yang We introduce a new proxy for measuring corporate bond liquidity, using the price of exchange-traded funds (ETFs) that hold corporate bonds. It measures the average liquidity across 900 corporate bonds every day, many more than other proxies used in previous Bank of Canada analysis. The new proxy nonetheless paints a very similar picture of liquidity conditions and confirms the previous findings: the liquidity of bonds has generally improved since 2010. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets JEL Code(s): G, G1, G12, G14
A Tale of Two Countries: Cash Demand in Canada and Sweden Staff Discussion Paper 2019-7 Walter Engert, Ben Fung, Björn Segendorf Cash use for payments has been steadily decreasing in many countries, including Canada and Sweden. This might suggest an evolution toward a cashless society. But in Canada, cash in circulation relative to GDP has been stable for decades and has even increased in recent years. By contrast, the cash-to-GDP ratio in Sweden has been falling steadily. What has caused this difference? Are there lessons to be learned from comparing the Canadian and Swedish experiences? Content Type(s): Staff research, Staff discussion papers Topic(s): Bank notes, Digital currencies and fintech, Financial services, Payment clearing and settlement systems JEL Code(s): E, E4, E41, E42, E5
The Formation of House Price Expectations in Canada: Evidence from a Randomized Information Experiment Staff Analytical Note 2019-24 Marc-André Gosselin, Mikael Khan, Matthieu Verstraete We conduct a randomized information experiment leveraging the Canadian Survey of Consumer Expectations. We provide causal evidence that respondents revise both their short- and medium-term expectations of future house price growth in a way that is consistent with observed short-term momentum in house prices. However, empirically, house price growth tends to revert to its mean in the medium term. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial stability, Housing JEL Code(s): C, C9, D, D8, D84, R, R2, R21
Tail Index Estimation: Quantile-Driven Threshold Selection Staff Working Paper 2019-28 Jon Danielsson, Lerby Ergun, Casper G. de Vries, Laurens de Haan The most extreme events, such as economic crises, are rare but often have a great impact. It is difficult to precisely determine the likelihood of such events because the sample is small. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial stability JEL Code(s): C, C0, C01, C1, C14, C5, C58
Relative Value of Government of Canada Bonds Staff Analytical Note 2019-23 Jean-Sébastien Fontaine, Jabir Sandhu, Adrian Walton Government of Canada bonds in circulation that promise very similar payoffs can have different prices. We study the reason for these differences. Bonds that trade more often and earn high rental income in the repurchase agreement (repo) market tend to have higher prices. Bonds with longer tenors and times to maturity tend to have lower prices. This contrast between cheap and expensive bonds is important because trading volume and rental income can change rapidly, unlike tenor and time to maturity, which are stable. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets JEL Code(s): G, G1, G10, G11, G12, G2, G23, G3, G32
Are Long-Horizon Expectations (De-)Stabilizing? Theory and Experiments Staff Working Paper 2019-27 George Evans, Cars Hommes, Isabelle Salle, Bruce McGough Most models in finance assume that agents make trading plans over the infinite future. We consider instead that they are boundedly rational and may only form forecasts over a limited horizon. Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Central bank research, Economic models, Financial markets JEL Code(s): C, C9, C92, D, D8, D84, E
August 1, 2019 Changes to publication of interest rate statistics Effective October 1, 2019, the Bank of Canada will no longer publish the monthly Chartered Bank Interest Rates. As well, the weekly rate will be relocated on our website. Content Type(s): Press, Market notices