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We summarize the theoretical model of central bank asset purchases developed in Cimon and Walton (2022). The model helps us understand how asset purchases ease pressures on investment dealers to restore market conditions in a crisis.

This article draws on theory and empirical evidence to examine a number of factors behind movements in Canadian house prices. It begins with an overview of the movements in house prices in Canada, using regional data to highlight factors that influence prices over the long run. It then turns to the central theme, that there are medium-run movements in prices not accounted for by long-run factors. Drawing on recent Bank of Canada research, the article discusses several factors behind these medium-run movements, including interest rates, expected price appreciation and market liquidity. The article concludes by identifying areas for future research that would further our understanding of fluctuations in house prices.

This paper considers the problem of estimating a linear model between two heavy-tailed variables if the explanatory variable has an extremely low (or high) value. We propose an estimator for the model coefficient by exploiting the tail dependence between the two variables and prove its asymptotic properties.

We quantify the effects of large-scale stock purchases by a central bank and compare these to bond purchases. We find that the central bank’s equity purchases would lower the risk and term premiums on stocks and long-term bonds, respectively, and thereby stimulate economic activity.

In order to understand what drives aggregate fluctuations, many macroeconomic models point to aggregate shocks and discount the contribution of firm-specific shocks. Recent research from other developed countries, however, has found that aggregate fluctuations are in part driven by idiosyncratic shocks to large firms.

A multi-country consumer survey investigates why and how much households decreased their consumption in five key sectors after pandemic-related restrictions were lifted in Europe in July 2020. Beyond infection risk and precautionary saving motives, households also reported not missing some consumption items, which may indicate preference shifts and structural changes in the post-COVID-19 economy.

Unexpected changes in interest rates lead small firms to materially change their investment rate. Large firms, in contrast, show a smaller response. This suggests both that financial conditions are an important channel for transmitting monetary policy and that firm characteristics can help us better understand fluctuations in business investment.

For central banks, conducting policy in an environment of uncertainty is a daily fact of life. This uncertainty can take many forms, ranging from incomplete knowledge of the correct economic model and data to future economic and geopolitical events whose precise magnitudes and effects cannot be known with certainty.

We document countercyclical corporate saving behavior with the degree of countercyclicality varying nonmonotonically with firm size. We then develop a dynamic stochastic general equilibrium model with heterogeneous firms to explain the pattern and study its implications for business cycles.

This report provides a detailed technical description of a stress test model for investment funds called Ceto.