Perceived versus Calibrated Income Risks in Heterogeneous-Agent Consumption Models Staff Working Paper 2023-59 Tao Wang Perceived income risks reported in a survey of consumer expectations are more heterogeneous and, on average, lower than indirectly calibrated risks based on panel data. They prove to be one explanation for why a large fraction of households hold very little liquid savings and why accumulated wealth is widely unequal across households. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Monetary policy, Monetary policy and uncertainty JEL Code(s): D, D1, D14, E, E2, E21, E7, E71, G, G5, G51
Climate-Related Flood Risk to Residential Lending Portfolios in Canada Staff Discussion Paper 2023-33 Craig Johnston, Geneviève Vallée, Hossein Hosseini Jebeli, Brett Lindsay, Miguel Molico, Marie-Christine Tremblay, Aidan Witts We assess the potential financial risks of current and projected flooding caused by extreme weather events in Canada. We focus on the residential real estate secured lending (RESL) portfolios of Canadian financial institutions (FIs) because RESL portfolios are an important component of FIs’ balance sheets and because the assets used to secure such loans are immobile and susceptible to climate-related extreme weather events. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Central bank research, Climate change, Credit risk management, Econometric and statistical methods, Financial institutions, Financial stability JEL Code(s): C, C8, C81, G, G2, G21, Q, Q5, Q54
Understanding the Systemic Implications of Climate Transition Risk: Applying a Framework Using Canadian Financial System Data Staff Discussion Paper 2023-32 Gabriel Bruneau, Javier Ojea Ferreiro, Andrew Plummer, Marie-Christine Tremblay, Aidan Witts Our study aims to gain insight on financial stability and climate transition risk. We develop a methodological framework that captures the direct effects of a stressful climate transition shock as well as the indirect—or systemic—implications of these direct effects. We apply this framework using data from the Canadian financial system. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Climate change, Economic models, Financial institutions, Financial markets, Financial stability JEL Code(s): C, C6, C63, G, G0, G01, G1, G10, G2, G20, Q, Q5, Q54
The impact of higher interest rates on mortgage payments Staff Analytical Note 2023-19 Maria teNyenhuis, Adam Su We investigate how the increase in interest rates since early 2022 is affecting mortgage payments. By November 2023, less than half of mortgage holders had faced higher payments. Many borrowers will see a sizable increase in payments at renewal, although income growth could help mitigate the impact. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Credit and credit aggregates, Financial institutions, Interest rates, Recent economic and financial developments JEL Code(s): D, D1, E, E4, E5, G, G2, G21
Finding the balance—measuring risks to inflation and to GDP growth Staff Analytical Note 2023-18 Bruno Feunou, James Kyeong Using our new quantitative tool, we show how the risks to the inflation and growth outlooks have evolved over the course of 2023. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C3, C32, C5, C58, E, E4, E44, G, G1, G17
Supporting the Transition to Net-Zero Emissions: The Evolving Role of Central Banks Staff Discussion Paper 2023-31 Karen McGuinness While climate change was largely tackled by government policies in the past, central banks are increasingly grappling with the risks climate change poses. They are evaluating their operational policies to reflect these risks and the transition to a net-zero economy. This paper explores the trade-offs and considerations central banks face. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Central bank research, Climate change, Financial markets JEL Code(s): D, D5, D53, E, E5, E58, E6, E63, G, G3, G32, Q, Q5, Q54
Central Bank Crisis Interventions: A Review of the Recent Literature on Potential Costs Staff Discussion Paper 2023-30 Patrick Aldridge, David Cimon, Rishi Vala Central banks’ actions to stabilize financial markets and implement monetary policy during crises may come with costs and side effects. We provide a literature review of these costs and discuss measures that may mitigate the negative impacts of crisis actions. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Central bank research, Financial institutions, Financial markets, Financial stability, Lender of last resort JEL Code(s): E, E5, E58, G, G1, G10, G2, G20
Making It Real: Bringing Research Models into Central Bank Projections Staff Discussion Paper 2023-29 Marc-André Gosselin, Sharon Kozicki Macroeconomic projections and risk analyses play an important role in guiding monetary policy decisions. Models are integral to this process. This paper discusses how the Bank of Canada brings research models and lessons learned from those models into the central bank projection environment. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Economic models, Monetary policy JEL Code(s): C, C3, C32, C5, C51, E, E3, E37, E4, E47, E5, E52
Assessing the effects of higher immigration on the Canadian economy and inflation Staff Analytical Note 2023-17 Julien Champagne, Erik Ens, Xing Guo, Olena Kostyshyna, Alexander Lam, Corinne Luu, Sarah Miller, Patrick Sabourin, Joshua Slive, Temel Taskin, Jaime Trujillo, Shu Lin Wee We assess the complex macroeconomic implications of Canada’s recent population increases. We find that newcomers significantly boost the non-inflationary, potential growth of the economy, but existing imbalances in the housing sector may be exacerbated. Greater housing supply is needed to complement the long-term economic benefits of population growth. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Domestic demand and components, Housing, Inflation and prices, Labour markets, Potential output, Recent economic and financial developments JEL Code(s): A, A1, A10, E, E2, E20, E3, E31, J, J1, J11, J15
Testing Collusion and Cooperation in Binary Choice Games Staff Working Paper 2023-58 Erhao Xie This paper studies the testable implication of players’ collusive or cooperative behaviour in a binary choice game with complete information. I illustrate the implementation of this test by revisiting the entry game between Walmart and Kmart. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Market structure and pricing JEL Code(s): C, C5, C57, L, L1, L13