Supply Drivers of US Inflation Since the COVID-19 Pandemic Staff Working Paper 2023-19 Serdar Kabaca, Kerem Tuzcuoglu This paper examines the contribution of several supply factors to US headline inflation since the start of the COVID-19 pandemic. We identify six supply shocks using a structural VAR model: labor supply, labor productivity, global supply chain, oil price, price mark-up and wage mark-up shocks. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Inflation and prices JEL Code(s): C, C3, C32, E, E3, E31, E32
Central Bank Forecasting: A Survey Staff Working Paper 2023-18 Carola Conces Binder, Rodrigo Sekkel We review the literature on central bank forecasting with a special focus on the Federal Reserve, European Central Bank, Bank of England and Bank of Canada. Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy JEL Code(s): E, E4, E47, E5, E52, E58
March 31, 2023 Quarterly Research Update – 2023 Q1 This 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. Content Type(s): Staff research, Research newsletters
A Review of the Bank of Canada’s Market Operations Related to COVID-19 Staff Discussion Paper 2023-6 Grahame Johnson This paper reviews the range of extraordinary programs launched by the Bank of Canada in response to the pandemic-related financial market disruption. It provides some recommendations for future interventions to ensure the programs are appropriately structured for the financial and economic stresses they are intended to address. Content Type(s): Staff research, Staff discussion papers Topic(s): Coronavirus disease (COVID-19), Financial markets, Financial stability JEL Code(s): D, D4, D47, E, E4, E41, E5, G, G0, G01, G1, G14, G2, G21, G23, H, H1, H12
Persistent Debt and Business Cycles in an Economy with Production Heterogeneity Staff Working Paper 2023-17 Aubhik Khan, Soyoung Lee We examine the role of debt in amplifying and propagating recessions. Firms’ debt adjustment makes recessions deeper but makes expansions gradual. In particular, when the aggregate business leverage is ten percentage points above average, the half-life of the recovery doubles. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Firm dynamics, Productivity JEL Code(s): E, E2, E23, E3, E30, E32
Cost Pass-Through with Capacity Constraints and International Linkages Staff Working Paper 2023-16 Reinhard Ellwanger, Hinnerk Gnutzmann, Piotr Śpiewanowski How are regional cost shocks passed through into global prices? We investigate the role of short-run capacity constraints and show that they can induce stark non-linearities in the pass-through. We highlight this effect for the market for ammonia, a commodity produced largely from natural gas. Content Type(s): Staff research, Staff working papers Topic(s): Climate change, Econometric and statistical methods, Inflation and prices, International topics JEL Code(s): L, L1, L13, L6, L65, Q, Q4, Q40, Q5, Q54
We Didn’t Start the Fire: Effects of a Natural Disaster on Consumers’ Financial Distress Staff Working Paper 2023-15 Anson T. Y. Ho, Kim Huynh, David T. Jacho-Chávez, Geneviève Vallée We use detailed consumer credit data to investigate the impact of the 2016 Fort McMurray wildfire, the costliest wildfire disaster in Canadian history, on consumers’ financial stress. We focus on the arrears of insured mortgages because of their important implications for financial institutions and insurers’ business risk and relevant management practices. Content Type(s): Staff research, Staff working papers Topic(s): Climate change, Credit and credit aggregates, Econometric and statistical methods, Financial stability JEL Code(s): C, C2, C21, D, D1, D12, G, G2, G21, Q, Q5, Q54
Firms’ inflation expectations and price-setting behaviour in Canada: Evidence from a business survey Staff Analytical Note 2023-3 Ramisha Asghar, James Fudurich, Jane Voll Canadian firms’ expectations for high inflation may be influencing their price setting, supporting strong price growth and delays in the transmission of monetary policy. Using data from the Business Outlook Survey, we investigate the reasons behind widespread price growth seen in Canada in 2021 and early 2022. Content Type(s): Staff research, Staff analytical notes Topic(s): Firm dynamics, Inflation and prices, Monetary policy transmission, Recent economic and financial developments JEL Code(s): D, D2, D22, E, E3, E31
A central bank digital currency for offline payments Staff Analytical Note 2023-2 Cyrus Minwalla, John Miedema, Sebastian Hernandez, Alexandra Sutton-Lalani Offline functionality is a key consideration for a potential CBDC. We describe the different types of offline functionality based on their duration outside of network connection—either intermittent (for short periods) or extended (for longer periods). We discuss the advantages and drawbacks of each and consider implications for end-user devices, system resilience and universal accessibility. Content Type(s): Staff research, Staff analytical notes Topic(s): Central bank research, Digital currencies and fintech JEL Code(s): E, E4, E42, E5, E51, E58, O, O3, O31
On the Fragility of DeFi Lending Staff Working Paper 2023-14 Jonathan Chiu, Emre Ozdenoren, Kathy Yuan, Shengxing Zhang We develop a dynamic model to capture key features of decentralized finance lending. We identify a price-liquidity feedback: the market outcome in any given period depends on agents' expectations about lending activities in future periods, with higher future price expectations leading to more lending and higher prices in that period. Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech, Financial stability JEL Code(s): G, G0, G01, G1, G10