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The Reports section of the Financial System Review examines selected issues of relevance to the Canadian and global financial systems. The June 2014 issue features three reports on financial system initiatives: making financial benchmarks more robust; implementing the stronger Basel III capital and liquidity framework for banks; and using stress tests to assess financial system risks.

We present the R package MSTest, which implements hypothesis testing procedures to determine the number of regimes in Markov switching models. The package provides several testing frameworks, including Monte Carlo likelihood ratio tests, moment-based tests, parameter stability tests, and classical likelihood ratio procedures.

The arrival of immigrants increases demand for housing and puts upward pressure on shelter prices. Using instrumental variables based on the ancestry composition of residents in US counties, we estimate the causal impact of immigration on local shelter prices.

The Canadian Financial Monitor (CFM) survey uses non-probability sampling for data collection, so selection bias is likely. We outline methods for obtaining survey weights and discuss the conditions necessary for these weights to eliminate selection bias. We obtain calibration weights for the 2018 and 2019 online CFM samples.

We analyze the interaction between committed monetary policy and discretionary fiscal policy in a model with public debt, endogenous government expenditures, distortive taxation and nominal rigidities.

We estimate the effects of economic uncertainty on time use and discuss its macroeconomic implications. We develop a model to demonstrate that substitution between market and non-market work provides an additional insurance margin to households, weakening precautionary savings and labour supply and lowering aggregate demand, ultimately amplifying the contractionary effects of uncertainty.

We use Bayesian predictive decision synthesis to formalize monetary policy decision-making. We develop a case-study of monetary policy decision-making of an inflation-targeting central bank using multiple models in a manner that considers decision goals, expectations and outcomes.

Monetary theory says that money is essential if it helps to achieve better incentive-feasible outcomes. We test this in the laboratory.

We study how different types of monetary policy shape the distributional effects of external economic shocks on households’ consumption in a small open economy. Our results present a trade-off between maintaining overall stabilization and controlling consumption inequality.

We examine loan insurance—credit risk transfer upon origination—in a model in which lenders can screen, learn loan quality over time, and can sell loans. Some lenders with low screening ability insure, benefiting from higher market liquidity of insured loans while forgoing the option to exploit future information about loan quality.