Time-Varying Crash Risk: The Role of Stock Market Liquidity Staff Working Paper 2016-35 Peter Christoffersen, Bruno Feunou, Yoontae Jeon, Chayawat Ornthanalai We estimate a continuous-time model with stochastic volatility and dynamic crash probability for the S&P 500 index and find that market illiquidity dominates other factors in explaining the stock market crash risk. While the crash probability is time-varying, its dynamic depends only weakly on return variance once we include market illiquidity as an economic variable in the model. Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Econometric and statistical methods, Financial stability JEL Code(s): G, G0, G01, G1, G12
Considerations for the allocation of non-default losses by financial market infrastructures Staff Analytical Note 2022-16 Daniele Costanzo, Radoslav Raykov Non-default losses of financial market infrastructures (FMIs) have gained attention due to their potential impacts on FMIs and FMI participants, and the lack of a common approach to address them. A key question is, who should absorb these losses? Content Type(s): Staff research, Staff analytical notes Research Topic(s): Financial markets, Financial system regulation and policies JEL Code(s): G, G2, G23, G28, G3, G32, G33
Strengthening IMF Surveillance: An Assessment of Recent Reforms Staff Discussion Paper 2009-10 Robert Lavigne, Lawrence L. Schembri The authors assess the potential impact of recently approved reforms to International Monetary Fund (IMF) surveillance; namely, the "2007 Decision on Bilateral Surveillance Over Members' Policies" and the "Statement of Surveillance Priorities" (SSP). They conclude that these complementary reforms have the potential to create a comprehensive and coherent framework for IMF surveillance. If implemented properly, […] Content Type(s): Staff research, Staff discussion papers Research Topic(s): International topics JEL Code(s): F, F3, F33
May 13, 2014 Measuring Uncertainty in Monetary Policy Using Realized and Implied Volatility Bank of Canada Review - Spring 2014 Bo Young Chang, Bruno Feunou Uncertainty surrounding the Bank of Canada’s future policy rates is measured using implied volatility computed from interest rate options and realized volatility computed from intraday prices of interest rate futures. Both volatility measures show that uncertainty decreased following major policy actions taken by the Bank in response to the 2007–09 financial crisis. Findings also indicate that, on average, uncertainty decreases following the Bank’s policy rate announcements. Content Type(s): Publications, Bank of Canada Review articles Research Topic(s): Monetary policy and uncertainty JEL Code(s): E, E5, E52, E58
What People Believe About Monetary Finance and What We Can(’t) Do About It: Evidence from a Large-Scale, Multi-Country Survey Experiment Staff Working Paper 2023-36 Cars Hommes, Julien Pinter, Isabelle Salle We conduct a large-scale survey to shed light on what people believe about public finance. An experiment demonstrates that central bank communication can persistently shift views on monetary financing. It further suggests that views on monetary financing impact support for fiscal discipline. Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Fiscal policy, Monetary policy JEL Code(s): C, C8, C83, E, E5, E58, E6, E60, E62, E7, E70, G, G5, G53, H, H3, H31
Is This Normal? The Cost of Assuming that Derivatives Have Normal Returns Staff Working Paper 2024-46 Radoslav Raykov Derivatives exchanges often determine collateral requirements, which are fundamental to market safety, with dated risk models assuming normal returns. However, derivatives returns are heavy-tailed, which leads to the systematic under-collection of collateral (margin). This paper uses extreme value theory (EVT) to evaluate the cost of this margin inadequacy to market participants in the event of default. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial stability JEL Code(s): G, G1, G10, G11, G2, G20
Survey of Price-Setting Behaviour of Canadian Companies Staff Working Paper 2006-35 David Amirault, Carolyn Kwan, Gordon Wilkinson In many mainstream macroeconomic models, sticky prices play an important role in explaining the effects of monetary policy on the economy. Content Type(s): Staff research, Staff working papers Research Topic(s): Inflation and prices, Monetary policy transmission JEL Code(s): D, D4, D40, E, E3, E30, L, L1, L11
Exact Non-Parametric Tests for a Random Walk with Unknown Drift under Conditional Heteroscedasticity Staff Working Paper 2001-2 Richard Luger This paper proposes a class of linear signed rank statistics to test for a random walk with unknown drift in the presence of arbitrary forms of conditional heteroscedasticity. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods JEL Code(s): C, C1, C12, C2, C22
Evolving Temperature Dynamics in Canada: Preliminary Evidence Based on 60 Years of Data Staff Working Paper 2021-22 Robert Amano, Marc-André Gosselin, Julien McDonald-Guimond Are summers getting hotter? Do daily temperatures change more than they used to? Using daily Canadian temperature data from 1960 to 2020 and modern econometric methods, we provide economists and policy-makers evidence on the important climate change issue of evolving temperatures. Content Type(s): Staff research, Staff working papers Research Topic(s): Climate change, Econometric and statistical methods JEL Code(s): C, C2, C22, Q, Q5, Q54
Sheltered Income: Estimating Income Under-Reporting in Canada, 1998 and 2004 Staff Working Paper 2015-22 Geoffrey R. Dunbar, Chunling Fu We use data from the Survey of Financial Security and the Survey of Household Spending to estimate the incidence and extent of income under-reporting in Canada in 1998 and 2004. We estimate that the proportion of households under-reporting income is roughly 35 to 50 per cent in both years. Content Type(s): Staff research, Staff working papers Research Topic(s): Domestic demand and components JEL Code(s): H, H2, H26, I, I3, I32, K, K4, K42