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This paper explains the nature of interest rates in the U.S. federal funds market after the 2007-09 financial crisis. We build a model of the over-the-counter lending market that incorporates new aspects of the financial system: abundance of liquidity, different regulatory standards for banks, and arbitrage opportunities created by limited access to the facility granting interest on excess reserves.

Using the Bank for International Settlements (BIS) Locational Banking Statistics data on bilateral bank claims from 1995 to 2014, we analyze the impact of monetary policy on cross-border bank flows. We find that monetary policy in a source country is an important determinant of cross-border bank flows.

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.

This paper proposes a unique approach to simulate intraday transactions in the Canadian retail payments batch system when such transactions are unobtainable. The simulation procedure has potential for helping with data-deficient problems where only high-level aggregate information is available.

This note introduces several market-based indicators and examines how they can further inform the Bank of Canada’s vulnerability assessment of Canadian financial institutions. Market-based indicators of leverage suggest that the solvency risk for major Canadian banks has increased since the beginning of the oil-price correction in the second half of 2014.

In a recent speech, Deputy Governor Sheryl Kennedy discusses how the efficiency of Canada's capital markets compares in a global context. Taking into account the three inter-related aspects of an efficient market (allocational, operational, and informational efficiency), Kennedy reviews the recent performance of Canadian capital markets under such headings as size, completeness, and access to capital and the instruments needed to hedge, or distribute, risk (allocational efficiency). To assess operational efficiency, she considers Canadian markets' liquidity and whether their transactional costs are competitive. Finally, she reviews transparency and market integrity (and how integrity is maintained) to determine markets' informational efficiency. She also offers several suggestions as to how Canadian markets can continue to be improve and maintain their competitiveness.

Banks’ business interactions create a network of relationships that are hidden in the correlations of bank stock returns. But for policy interventions, we need causality to understand how the network changes. Thus, this paper looks for the causal network anticipated by investors.

In 2023, the share of Canadian banks’ foreign assets and liabilities amounted to around 50%. While Canadian banks engage domestically mostly with households and non-financial corporations, their most common counterparties abroad are non-bank financial institutions.

This paper shows point identification in first-price auction models with risk aversion and unobserved auction heterogeneity by exploiting multiple bids from each auction and variation in the number of bidders. The required exclusion restriction is shown to be consistent with a large class of entry models.

We develop a model in which a financial intermediary’s investment in risky assets—risk taking—is excessive due to limited liability and deposit insurance and characterize the policy tools that implement efficient risk taking.