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2160 Results

The Optimum Quantity of Central Bank Reserves

Staff working paper 2025-15 Jonathan Witmer
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.

How Far Do Canadians Need to Travel to Access Cash?

Staff discussion paper 2023-28 Heng Chen, Daneal O’Habib, Hongyu Xiao
This paper develops a travel-based metric to measure Canadians’ access to cash from automated banking machines (ABMs) and financial institution branches. We find that, overall, access to cash remained stable between 2019 and 2022. The total number of ABMs in Canada increased by 3.7% and the total number of branches decreased by 5.2% during that period.
Content Type(s): Staff research, Staff discussion papers JEL Code(s): G, G2, G21, J, J1, J15, R, R5, R51 Research Theme(s): Money and payments, Cash and bank notes
June 11, 2015

Assessing Vulnerabilities in the Canadian Financial System

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.
Content Type(s): Publications, Financial System Review articles JEL Code(s): G, G0, G01, G1, G10, G2, G20

Stagflation and Topsy-Turvy Capital Flows

Staff working paper 2022-46 Julien Bengui, Louphou Coulibaly
Unregulated capital flows are likely excessive during a stagflation episode, owing to a macroeconomic externality operating through the economy’s supply side. Inflows raise domestic wages and cause unwelcome upward pressure on firm costs, yet market forces likely generate such inflows. Optimal capital flow management instead requires net outflows.

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.
November 17, 2011

Liquidity Provision and Collateral Haircuts in Payments Systems

Central banks play a pivotal role in well-functioning payments systems by providing liquidity via collateralized lending. This article discusses the role of collateral and haircut policy in central bank lending, as well as the distinguishing features of the central bank’s policy relative to private sector practices. It presents a model that explicitly incorporates the unique role of central banks in the payments system and argues that central banks must consider how their haircut policies affect the relative price and liquidity of assets, the market’s asset allocation, and the likelihood of participants to default. Furthermore, under extraordinary circumstances, there is a rationale for the central bank to temporarily reduce haircuts or broaden the list of eligible collateral to mitigate the shortage of liquidity in the market.

Housing Price Network Effects from Public Transit Investment: Evidence from Vancouver

Staff working paper 2018-18 Alex Chernoff, Andrea Craig
In this paper, we estimate the effect on housing prices of the expansion of the Vancouver SkyTrain rapid transit network during the period 2001–11. We extend the canonical residential sorting equilibrium framework to include commuting time in the household utility function.
August 16, 2012

Global Risk Premiums and the Transmission of Monetary Policy

An important channel in the transmission of monetary policy is the relationship between the short-term policy rate and long-term interest rates. Using a new term-structure model, the authors show that the variation in long-term interest rates over time consists of two components: one representing investor expectations of future policy rates, and another reflecting a term-structure risk premium that compensates investors for holding a risky asset. The time variation in the term-structure risk premium is countercyclical and largely determined by global macroeconomic conditions. As a result, long-term rates are pushed up during recessions and down during times of expansion. This is an important phenomenon that central banks need to take into account when using short-term rates as a policy tool.
Content Type(s): Publications, Bank of Canada Review articles JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G12, G15

The Extensive Margin of Trade and Monetary Policy

Staff working paper 2018-37 Yuko Imura, Malik Shukayev
This paper studies the effects of monetary policy shocks on firms’ participation in exporting. We develop a two-country dynamic stochastic general equilibrium model in which heterogeneous firms make forward-looking decisions on whether to participate in the export market and prices are staggered across firms and time.
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