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Consumers often express concerns about lack of privacy, but they still give up a lot of data to digital platforms. This paper builds a dynamic game-theoretic model of data collection and privacy protection, which potentially explains consumers’ behaviour.

The authors examine the effect of a trade-off between shared credit risk and liquidity efficiency, among participants in Tranche 2 of the Large Value Transfer System (LVTS T2), on their decisions to leave open, or close, their bilateral credit limits (BCLs) to a participant at risk of imminent closure.

This paper studies exchange rate dynamics by incorporating bounded rationality, that is, limited foresight, in a small open-economy model. This behavior of limited foresight helps explain several observations and puzzles in the data of exchange rate movements.

Risk-management systems in financial institutions have come under increasing scrutiny in light of the current financial crisis, resulting in calls for improvements and an increased role for regulators. Yet such objectives miss the intricacy at the heart of the risk-management process. This article outlines the complexity inherent in any modern risk-management system, which arises because there are shortcuts in the theoretical models that risk managers need to be aware of, as well as the difficulties in sensible calibration of model parameters. The author suggests that prudential regulation of such systems should focus on failures within the financial firm and in the market interactions between firms and reviews possible strategies that can improve the performance of risk management and microprudential regulatory practice.

We conduct surveys to study how consumer spending responds to higher inflation expectations. Most respondents spend the same, sticking to fixed budget plans or not considering inflation for spending decisions. About 20% decrease spending because they feel poorer and cut spending to invest in inflation-proof assets. Very few increase spending.

Expected returns vary when investors face time-varying investment opportunities. Long-run risk models (Bansal and Yaron 2004) and no-arbitrage affine models (Duffie, Pan, and Singleton 2000) emphasize sources of risk that are not observable to the econometrician.

Deputy Governor Sylvain Leduc discusses how upgrading Canada’s core payment systems will contribute to financial stability and help the Bank keep inflation on target.

The authors consider the liquidity efficiency of Tranche 2 of the Large Value Transfer System (LVTS T2) by examining, through an empirical analysis, some plausible strategic reactions of individual participants to a systemwide shock to available liquidity in the system.

We investigate whether expectations that are not fully rational have the potential to explain the evolution of house prices and the price-to-rent ratio in the United States.

In this report, the authors examine and compare twelve private and public sector models of the Canadian economy with respect to their paradigm, structure, and dynamic properties. These open-economy models can be grouped into two economic paradigms.