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Can monetary policy be used to promote financial stability? We answer this question by estimating the impact of a monetary policy shock on private-sector leverage and the likelihood of a financial crisis. Impulse responses obtained from a panel VAR model of 18 advanced countries suggest that the debt-to-GDP ratio rises in the short run following an unexpected tightening in monetary policy.

Central banks communicate the results of open market operations. This helps participants in financial markets more accurately estimate the prevailing demand and supply conditions in the market for overnight loans.

This monthly 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.

We analyze the financial statements and stock prices of publicly traded firms incorporated in Canada that report greenhouse gas emissions. We find that these firms primarily use equity financing. We also find that equity investors increasingly account for firms’ emissions when making investment decisions but the impact appears small. This suggests that assets exposed to climate change remain at risk of a sudden repricing.

The lack of consolidated Canadian micro data on household balance sheets and expenditures has been an important impediment to empirical research into real-financial linkages in the Canadian household sector. Our paper attempts to fill this data gap by merging household balance sheet data from the Canadian Financial Monitor survey with household expenditure data from the Survey of Household Spending.

We examine the Canadian money market fund (MMF) sector and find that it has grown rapidly, holding a large share of treasury bills and commercial paper. Unlike in some other jurisdictions where investor outflows likely amplified stresses, Canadian MMFs experienced inflows during the March 2020 market turmoil.

Latency delays—known as “speed bumps”—are an intentional slowing of order flow by exchanges. Supporters contend that delays protect market makers from high-frequency arbitrage, while opponents warn that delays promote “quote fading” by market makers. We construct a model of informed trading in a fragmented market, where one market operates a conventional order book and the other imposes a latency delay on market orders.

This paper uncovers trends in payment timing in Canada’s Large Value Transfer System (LVTS) from 2003 to 2011. Descriptive analysis shows that LVTS payment activity has not been peaking in the late afternoon since 2008, and the improvement was most significant in 2009.

We study the interaction between epidemics and economic decisions in a model that has silent transmission of the virus. We find that rational behaviour strongly diminishes the severity of the epidemic but worsens the economic recession. We also find that the detection and isolation of not only symptomatic individuals but also those who are infected and asymptomatic or mildly symptomatic can reduce the severity of the recession caused by the pandemic.

There are two broad classes of arguments for greater flexibility in the design and application of monetary policy frameworks. The BIS has done a great deal of useful work on asset-price targeting in particular and on the complicated interplay between monetary policy and financial stability in general.