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2120 Results

Calibrating the Magnitude of the Countercyclical Capital Buffer Using Market-Based Stress Tests

Staff working paper 2018-54 Maarten van Oordt
How much capital do banks need as a buffer to absorb severe shocks? By using historical stock market data, market-based stress tests help estimate the magnitude of capital buffers necessary to absorb severe but plausible shocks.

The Case of Serial Disappointment

Similar to those of other forecasters, the Bank of Canada’s forecasts of global GDP growth have shown persistent negative errors over the past five years. This is in contrast to the pre-crisis period, when errors were consistently positive as global GDP surprised to the upside. All major regions have contributed to the forecast errors observed since 2011, although the United States has been the most persistent source of notable errors.
February 21, 2013

The U.S. Recovery from the Great Recession: A Story of Debt and Deleveraging

The U.S. recovery from the Great Recession has been slow relative to other postwar-era recoveries in the United States. Encouraged by loose lending standards in the pre-crisis period, U.S. households took on unsustainable amounts of debt, making them vulnerable to adverse shocks. Subsequently, a considerable drop in asset prices forced households to repair their balance sheets. While there has been progress in household deleveraging, the government sector now needs to delever, which will restrain growth over the next few years.
Content Type(s): Publications, Bank of Canada Review articles JEL Code(s): E, E2, E21, E6, E60
November 23, 2004

Real Return Bonds: Monetary Policy Credibility and Short-Term Inflation Forecasting

The break-even inflation rate (BEIR) is calculated by comparing the yields on conventional and Real Return Bonds. Defined as the average rate of inflation that equates the expected returns on these two bonds, the BEIR has the potential to contain useful information about long-run inflation expectations. Yet the BEIR has been higher, on average, and more variable than survey measures of inflation expectations, which may be explained by the effects of premiums and distortions embedded in the BEIR. Because of the difficulty in accounting for these distortions, the BEIR should not be given a large weight as a measure of long-run inflation expectations at this time. However, as the Real Return Bond market continues to develop, the BEIR should become a more useful indicator of inflation expectations. At present, it demonstrates no clear advantage over survey measures and even past inflation rates in forecasting near-term inflation.
March 25, 2022

A world of difference: Households, the pandemic and monetary policy

Remarks (delivered virtually) Sharon Kozicki Federal Reserve Bank of San Francisco Macroeconomics and Monetary Policy Conference San Francisco, California
Bank of Canada Deputy Governor Sharon Kozicki discusses how differences among households affect economic outcomes, how shocks can have important uneven effects across households, and why these things matter for monetary policy.

Uncovering Subjective Models from Survey Expectations

Staff working paper 2025-31 Chenyu Hou, Tao Wang
This paper shows that survey expectations can be used to uncover how households subjectively think about inflation and unemployment dynamics jointly. The commonly documented "stagflation view", namely the households' tendency to associate inflation with a worse labor market, implies amplified impacts of supply shocks and dampened ones of demand shocks.

The Side Effects of Safe Asset Creation

Staff working paper 2021-34 Sushant Acharya, Keshav Dogra
The secular decline in real interest rates has created a challenge for monetary policy, now confronting the zero lower bound more often. An increase in the supply of safe assets reduces downward pressure on the natural interest rate. This allows monetary policy to reach price stability and full employment, but not without cost—permanently lower investment.
November 17, 2011

Bank of Canada Review - Autumn 2011

This issue features four articles that present research and analysis by Bank staff. The first focuses on reforming the international monetary system; the second on the role of collateral and haircut policy in central bank lending; and the third on the extraction of information from the Business Outlook Survey using principal-component analysis. The fourth reviews studies that model the counterfeiting of bank notes.

Gazing at r-star: A Hysteresis Perspective

Staff working paper 2023-5 Paul Beaudry, Katya Kartashova, Césaire Meh
Many explanations for the decline in real interest rates over the last 30 years point to the role that population aging or rising income inequality plays in increasing the long-run aggregate demand for assets. Notwithstanding the importance of such factors, the starting point of this paper is to show that the major change driving household asset demand over this period is instead an increased desire—for a given age and income level—to hold assets.
November 11, 2008

The Market Impact of Forward-Looking Policy Statements: Transparency vs. Predictability

Central banks continuously strive to improve how they communicate to financial markets and the public in order to increase transparency. For this reason, many central banks have begun to include guidance on the policy rate in the form of forward-looking statements in their communications. This article examines the debate over the usefulness of providing such statements from both theoretical and empirical standpoints. The evidence presented here suggests that the use of forward-looking statements in Bank of Canada communications has made the Bank more predictable, but not necessarily more transparent.
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