Challenges in Implementing Worst-Case Analysis Staff working paper 2018-47 Jon Danielsson, Lerby Ergun, Casper G. de Vries Worst-case analysis is used among financial regulators in the wake of the recent financial crisis to gauge the tail risk. We provide insight into worst-case analysis and provide guidance on how to estimate it. We derive the bias for the non-parametric heavy-tailed order statistics and contrast it with the semi-parametric extreme value theory (EVT) approach. Content Type(s): Staff research, Staff working papers JEL Code(s): C, C0, C01, C1, C14, C5, C58 Research Theme(s): Financial system, Financial stability and systemic risk, Models and tools, Econometric, statistical and computational methods
November 23, 2004 Real Return Bonds: Monetary Policy Credibility and Short-Term Inflation Forecasting Bank of Canada Review - Autumn 2004 Christopher Reid, Frédéric Dion, Ian Christensen 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. Content Type(s): Publications, Bank of Canada Review articles
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. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E3, E4, E5, G, G1, H, H6 Research Theme(s): Financial system, Financial stability and systemic risk, Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Monetary policy tools and implementation
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. Content Type(s): Staff research, Staff working papers JEL Code(s): D, D8, D84, E, E2, E21, E3, E30, E32, E7, E71 Research Theme(s): Models and tools, Econometric, statistical and computational methods, Economic models, Monetary policy, Inflation dynamics and pressures, Real economy and forecasting
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. Content Type(s): Publications, Bank of Canada Review
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. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E21, E3, E31, E4, E43, E5, E52, E58, E6, E62, G, G5, G51, H, H6 Research Theme(s): Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission, Real economy and forecasting
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. Content Type(s): Press, Speeches and appearances, Remarks Subject(s): Monetary policy, Economic models, Economy/Economic growth, Inflation, Inflation targeting framework
The Productivity Slowdown in Canada: An ICT Phenomenon? Staff working paper 2019-2 Jeffrey Mollins, Pierre St-Amant We ask whether a weaker contribution of information and communication technologies (ICT) to productivity growth could account for the productivity slowdown observed in Canada since the early 2000s. To answer this question, we consider several methods capturing channels through which ICT could affect aggregate productivity growth. Content Type(s): Staff research, Staff working papers JEL Code(s): D, D2, D24, O, O4, O41, O47 Research Theme(s): Monetary policy, Real economy and forecasting, Structural challenges, Digitalization and productivity
Potential netting benefits from expanded central clearing in Canada’s fixed-income market Staff analytical note 2022-8 Jessie Ziqing Chen, Johannes Chen, Shamarthi Ghosh, Manu Pandey, Adrian Walton We assess whether more central clearing would enhance the resilience of Canadian fixed-income markets. Our analysis estimates the potential benefits of balance sheet netting under scenarios where central clearing is expanded to new participants. Content Type(s): Staff research, Staff analytical notes JEL Code(s): D, D4, G, G1, G12, G2, G21, G29 Research Theme(s): Financial markets and funds management, Market functioning, Financial system, Financial stability and systemic risk, Money and payments, Payment and financial market infrastructures
May 11, 2017 The Life Cycle of Government of Canada Bonds in Core Funding Markets Bank of Canada Review - Spring 2017 Narayan Bulusu, Sermin Gungor Data on the use of government securities in the repo, securities lending and cash markets suggest there are bond market clienteles in Canada. Shorter-term bonds are more prevalent in the repo market, while longer-maturity securities are more active in the securities lending market—consistent with the preferred habitat hypothesis. These results could help design better debt-management strategies and more-effective policies to maintain well-functioning financial markets. Content Type(s): Publications, Bank of Canada Review articles JEL Code(s): G, G1, G12, G2, G23