Benchmarks for assessing labour market health: 2023 update Staff Analytical Note 2023-7 Erik Ens, Kurt See, Corinne Luu We enhance benchmarks for assessing strength in the Canadian labour market. We find the labour market remains tight despite recent strong increases in labour supply, including among prime-working-age women. We also assess the anticipated easing in labour conditions in a context of high population growth. Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Coronavirus disease (COVID-19), Econometric and statistical methods, Labour markets, Monetary policy JEL Code(s): E, E2, E24, J, J2, J21, J6
Reviewing Canada’s Monetary Policy Implementation System: Does the Evolving Environment Support Maintaining a Floor System? Staff Discussion Paper 2023-10 Toni Gravelle, Ron Morrow, Jonathan Witmer At the onset of the pandemic, the Bank of Canada transitioned its framework for monetary policy implementation from a corridor system to a floor system, which it has since decided to maintain. We provide a comprehensive analysis of both frameworks and assess their relative merits based on five key criteria that define a sound framework. Content Type(s): Staff research, Staff discussion papers Topic(s): Market structure and pricing, Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): D, D4, D47, E, E4, E42, E5, E58
Potential output and the neutral rate in Canada: 2023 assessment Staff Analytical Note 2023-6 Julien Champagne, Christopher Hajzler, Dmitry Matveev, Harlee Melinchuk, Antoine Poulin-Moore, Galip Kemal Ozhan, Youngmin Park, Temel Taskin We expect that potential output growth will rebound from 1.4% in 2022 to 2.2% on average between 2023 and 2026. We revised down our estimates of growth over 2022–25 relative to the April 2022 assessment. The Canadian nominal neutral rate remains unchanged—in the range of 2% to 3%. Content Type(s): Staff research, Staff analytical notes Topic(s): Economic models, Interest rates, Labour markets, Monetary policy, Potential output, Productivity JEL Code(s): E, E2, E3, E4, E5
Assessing global potential output growth and the US neutral rate: April 2023 Staff Analytical Note 2023-5 Salma Ahmed, Aviel Avshalumov, Tania Chaar, Eshini Ekanayake, Helen Lao, Louis Poirier, Jenna Rolland-Mills, Argyn Toktamyssov, Lin Xiang We expect global potential output growth to increase from 2.5% in 2022 to 2.8% by 2026. Compared with the April 2022 staff assessment, global potential output growth is marginally slower. The current range for the US neutral rate is 2% to 3%, unchanged from the last annual assessment. Content Type(s): Staff research, Staff analytical notes Topic(s): Interest rates, Monetary policy, Potential output, Productivity JEL Code(s): E, E1, E2, E4, E5, F, F0, O, O4
How Banks Create Gridlock to Save Liquidity in Canada's Large Value Payment System Staff Working Paper 2023-26 Rodney J. Garratt, Zhentong Lu, Phoebe Tian We show how participants in Canada’s new high-value payment system save liquidity by exploiting the new gridlock resolution arrangement. The findings have important implications for the design of these systems and shed light on financial institutions’ liquidity preference. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E58, G, G2, G21
A Review of the Bank of Canada’s Support of Key Financial Markets During the COVID-19 Crisis Staff Discussion Paper 2023-9 Joshua Fernandes, Michael Mueller The COVID-19 pandemic placed unprecedented strain on the global financial system. We describe how the Bank of Canada responded to the rapidly deteriorating liquidity in core Canadian fixed-income markets. Content Type(s): Staff research, Staff discussion papers Topic(s): Coronavirus disease (COVID-19), Financial markets, Market structure and pricing, Monetary policy and uncertainty JEL Code(s): E, E4, E44, E5, E58, G, G0, G01
Pricing Indefinitely Lived Assets: Experimental Evidence Staff Working Paper 2023-25 John Duffy, Janet Hua Jiang, Huan Xie We study the trading of an asset with bankruptcy risk. The traded price of the asset is, on average, 40% of the expected total dividend payments. We investigate which economic models can explain the low traded price. Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets JEL Code(s): C, C9, C91, C92, D, D8, D81, G, G1, G12
From LVTS to Lynx: Quantitative Assessment of Payment System Transition Staff Working Paper 2023-24 Ajit Desai, Zhentong Lu, Hiru Rodrigo, Jacob Sharples, Phoebe Tian, Nellie Zhang We quantitatively assess the changes in participants’ payment behaviour from modernizing Canada's high-value payments system to Lynx. Our analysis suggests that Lynx's liquidity-saving mechanism encourages liquidity pooling and early payments submission, resulting in improved efficiency for participants but with slightly increased payment delays. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C1, C10, E, E4, E42, G, G2, G28
Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media Staff Working Paper 2023-23 Alistair Macaulay, Wenting Song News media present competing interpretations of what breaking news implies for the macroeconomy. Recent examples include news reporting on high inflation and yield curve inversions. Do these narratives shape macroeconomic sentiment? In this paper, we highlight the importance of narratives using evidence linking traditional media and social media. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Inflation and prices, Monetary policy JEL Code(s): D, D8, D84, E, E3, E32, E4, E43, E44, E5, G, G1
The Impact of Unemployment Insurance and Unsecured Credit on Business Cycles Staff Working Paper 2023-22 Michael Irwin This paper studies how unsecured consumer credit impacts the extent to which unemployment insurance (UI) policies smooth aggregate consumption fluctuations over the business cycle. Using a general equilibrium real business cycle model, I find that unsecured credit amplifies the extent to which UI smooths cyclical consumption fluctuations. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Economic models, Fiscal policy, Labour markets JEL Code(s): E, E2, E21, E24, E3, E32, E4, E44, E6, E62