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2154 Results

Should Central Banks Worry About Nonlinearities of their Large-Scale Macroeconomic Models?

Staff working paper 2017-21 Vadym Lepetyuk, Lilia Maliar, Serguei Maliar
How wrong could policymakers be when using linearized solutions to their macroeconomic models instead of nonlinear global solutions?

The Welfare Effects of Protection: A General Equilibrium Analysis of Canada’s National Policy

Staff working paper 2017-18 Patrick Alexander, Ian Keay
In this paper, we study the impact of Canada’s adoption of protectionist trade policy in 1879 on Canadian welfare. Under the National Policy the Canadian average weighted tariff increased from 14% to 21%. The conventional view is that this was a distortionary policy that negatively affected Canadian welfare.
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

Global Demand and Supply Sentiment: Evidence from Earnings Calls

Staff working paper 2023-37 Temel Taskin, Franz Ulrich Ruch
This paper quantifies global demand, supply and uncertainty shocks and compares two major global recessions: the 2008–09 Great Recession and the COVID-19 pandemic. We use two alternate approaches to decompose economic shocks: text mining techniques on earnings calls transcripts and a structural Bayesian vector autoregression model.
March 9, 2010

An Uncertain Past: Data Revisions and Monetary Policy in Canada

Many important economic variables are subject to revision. This article explains how, when, and why such revisions occur; how revisions to Canadian gross domestic product (GDP) compare with GDP revisions in some other countries; which GDP components are subject to the largest revisions; and how data revisions can affect policy decisions. The author finds that revisions to Canadian GDP tend to be smaller, on average, than those of some other countries, and that among the GDP components, exports and imports are most heavily revised.

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.
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.

What Drives Interbank Loans? Evidence from Canada

Staff working paper 2018-5 Narayan Bulusu, Pierre Guérin
We identify the drivers of unsecured and collateralized loan volumes, rates and haircuts in Canada using the Bayesian model averaging approach to deal with model uncertainty. Our results suggest that the key friction driving behaviour in this market is the collateral reallocation cost faced by borrowers.
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.
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