News-Driven International Credit Cycles Staff Working Paper 2021-66 Galip Kemal Ozhan This paper examines the implications of positive news about future asset values that turn out to be incorrect at a later date in an open economy model with banking. The model captures the patterns of bank credit and current account dynamics in Spain between 2000 and 2010. The model finds that the use of unconventional policies leads to a milder bust. Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Economic models, Financial stability, Recent economic and financial developments, Sectoral balance sheet JEL Code(s): E, E4, E44, F, F3, F32, F4, F41, G, G1, G15, G2, G21
Outside Investor Access to Top Management: Market Monitoring versus Stock Price Manipulation Staff Working Paper 2020-43 Josef Schroth Should managers be paid in stock options if they provide stock-market participants with information about the firm? This paper studies how firm owners trade off the benefit of stock-price incentives and better-informed market participants against the cost of potential stock-price manipulation. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial markets, Recent economic and financial developments JEL Code(s): D, D8, D82, D86, G, G1, G14, G3, G32, G34, M, M1, M12, M4, M41
The Role of Expenditure Switching in the Global Imbalance Adjustment Staff Working Paper 2010-16 Wei Dong In theory, nominal exchange rate movements can lead to “expenditure switching” when they generate changes in the relative prices of goods across countries. This paper explores whether the expenditure-switching role of exchange rates has changed in the current episode of significant global imbalances. Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, International topics JEL Code(s): F, F3, F4
What to Expect When China Liberalizes Its Capital Account Staff Discussion Paper 2016-10 Mark Kruger, Gurnain Pasricha When China joined the World Trade Organization in December 2001, it marked a watershed for the world economy. Ten years from now, the opening of China’s capital account and the financial integration that will unfold will be viewed as a milestone of similar importance. Content Type(s): Staff research, Staff discussion papers Topic(s): Balance of payments and components, Exchange rate regimes, International topics JEL Code(s): F, F3, F31, F32, G, G1, G18
Vertical Specialization and Gains from Trade Staff Working Paper 2017-17 Patrick Alexander Multi-stage production is widely recognized as an important feature of the modern global economy. This feature has been incorporated into many state-of-the-art quantitative trade models, and has been shown to deliver significant additional gains from international trade. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, International topics, Trade integration JEL Code(s): F, F1, F11, F14, F6, F60
Expenditure-Switching Effect and the Choice of Exchange Rate Regime Staff Working Paper 2007-54 Wei Dong The author investigates the quantitative importance of the expenditure-switching effect by developing and estimating a structural sticky-price model nesting both producer currency pricing (PCP) and local currency pricing (LCP) settings. Content Type(s): Staff research, Staff working papers Topic(s): Exchange rate regimes, International topics JEL Code(s): F, F3, F4
Credit Risk Transfer and Bank Insolvency Risk Staff Working Paper 2017-59 Maarten van Oordt The present paper shows that, everything else equal, some transactions to transfer portfolio credit risk to third-party investors increase the insolvency risk of banks. This is particularly likely if a bank sells the senior tranche and retains a sufficiently large first-loss position. Content Type(s): Staff research, Staff working papers Topic(s): Credit risk management, Financial institutions, Financial stability JEL Code(s): G, G2, G21, G28, G3, G32
ToTEM III: The Bank of Canada’s Main DSGE Model for Projection and Policy Analysis Technical Report No. 119 Paul Corrigan, Hélène Desgagnés, José Dorich, Vadym Lepetyuk, Wataru Miyamoto, Yang Zhang ToTEM III is the most recent generation of the Bank of Canada’s main dynamic stochastic general equilibrium model for projection and policy analysis. The model helps Bank staff tell clear and coherent stories about the Canadian economy’s current state and future evolution. Content Type(s): Staff research, Technical reports Topic(s): Business fluctuations and cycles, Economic models, Housing, Interest rates, Monetary policy JEL Code(s): E, E1, E17, E2, E20, E3, E30, E4, E40, E5, E50, E6, E62, E65, F, F4, F40, F41, G, G5, G51
Exchange Rates, Retailers, and Importing: Theory and Firm-Level Evidence Staff Working Paper 2019-34 Alex Chernoff, Patrick Alexander We develop a model with firm heterogeneity in importing and cross-border shopping among consumers. Exchange-rate appreciations lower the cost of imported goods, but also lead to more cross-border shopping; hence, the net impact on aggregate retail prices and sales is ambiguous. Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, International topics, Service sector JEL Code(s): F, F1, F10, F14, L, L8, L81
Inference in Games Without Nash Equilibrium: An Application to Restaurants’ Competition in Opening Hours Staff Working Paper 2018-60 Erhao Xie This paper relaxes the Bayesian Nash equilibrium (BNE) assumption commonly imposed in empirical discrete choice games with incomplete information. Instead of assuming that players have unbiased/correct expectations, my model treats a player’s belief about the behavior of other players as an unrestricted unknown function. I study the joint identification of belief and payoff functions. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Market structure and pricing JEL Code(s): C, C5, C57, L, L1, L13, L8, L85