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This paper compares the distributional effects of conventional monetary policy and quantitative easing (QE) within an estimated open-economy DSGE model of the euro area.

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.

Deputy Governor Paul Beaudry discusses how financial vulnerabilities present a challenge for monetary policy.

Many central banks around the world have embraced inflation targeting as a monetary policy framework. Interest is growing, however, in price-level targeting as an alternative. The choice of frameworks has important consequences for financial contracts, most of which are not fully indexed to the price level. Changes in the price level therefore lead to changes in the real value of contracts.

Given the rapid and ongoing integration of the global economy, the International Monetary Fund needs to renew its role, governance structure, and functions if it is to maintain its relevance as the institution charged with promoting global financial stability. Lecavalier and Santor examine the areas of possible reform, including quota, voice, and representation; internal governance; surveillance; lending instruments; finances; and the Fund's role in low-income countries. They also review current Bank of Canada research that supports these reform efforts, including an integrated framework for IMF surveillance recently developed at the Bank.

This paper analyzes the optimal quantity of central bank reserves in an economy where reserves and other financial assets provide liquidity benefits. Using a static model, I derive a constrained Friedman rule that characterizes the socially optimal level of reserves, demonstrating that this quantity is neither necessarily large nor small but depends on the marginal benefits of reserves relative to alternative safe assets.

We explore properties of asymmetric generalized autoregressive conditional heteroscedasticity (GARCH) models in the threshold GARCH (GTARCH) family and propose a more general Spline-GTARCH model, which captures high-frequency return volatility, low-frequency macroeconomic volatility as well as an asymmetric response to past negative news in both autoregressive conditional heteroscedasticity (ARCH) and GARCH terms.

The authors present the four common cyclical vulnerabilities that appear in financial systems, providing examples of qualitative and quantitative indicators used to monitor these vulnerabilities across different sectors. They also discuss other inputs to the vulnerability assessment and to the internal process used at the Bank of Canada for identifying, evaluating and communicating vulnerabilities and risks, and highlight some of the key challenges in assessing financial system vulnerabilities and risks.

This report provides a detailed technical description of the updated MacroFinancial Risk Assessment Framework (MFRAF), which replaces the version described in Gauthier, Souissi and Liu (2014) as the Bank of Canada’s stress-testing model for banks with a focus on domestic systemically important banks (D-SIBs).