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When investors redeem their fund shares for cash, fixed-income fund managers can choose whether to draw on their liquid holdings or sell bonds in the secondary market. We analyze the liquidity-management decisions of Canadian corporate bond mutual funds, focusing on the strategies they use to meet investor redemptions.

We study household mortgage choice in a model with three mortgage contracts that differ in their payment structures: fixed-rate fixed-payment, variable-rate variable-payment, and a hybrid variable-rate fixed-payment mortgage where interest rate changes affect principal repayment rather than payment size. We calibrate the model to match mortgage choice patterns in Canada, where all these options are offered with short terms. We demonstrate that restricting contract choice or mandating long terms, as in the U.S. system, can lead to substantial welfare losses by limiting risk management strategies and increasing mortgage pricing ex-ante.

We study competition for consumer attention, in which platforms can sacrifice service quality for attention. A platform can choose the “addictiveness” of its service.

This paper analyzes cross-border cryptocurrency flows, focusing on Bitcoin and four major stablecoins. Using data for 162 countries, we identify the key determinants, including responses to weak economic conditions and demand for remittances. A COVID-19 case study supports these findings and emphasizes the role of cryptocurrencies in global finance.

Coletti and Lalonde compare inflation targeting and price-level targeting in the context of a small open economy subject to sizable terms-of-trade shocks. The authors summarize recent research that compares the ability of price-level targeting and inflation targeting to stabilize the macroeconomy when confronted with shocks similar to those experienced by Canada in recent years. Their preliminary results suggest that price-level targeting may represent a feasible alternative to traditional inflation targeting. Their article also provides insight into the direction of current research in this area at the Bank.

The Bank of Canada uses several short-term forecasting models for the monitoring of key foreign economies - the United States, the euro area, Japan and China. The design of the forecasting models used for each region is influenced by the level of detail required, as well as the timeliness and volatility of data. Forecasts from different models are typically combined to mitigate model uncertainty, and judgment is applied to the model forecasts to incorporate information that is not directly reflected in the most recent indicators.

With increasing levels of household debt in recent years, the number of households that may be vulnerable to a negative economic shock is rising as well. Decisions made by both the debtor and the creditor can contribute to insolvency. This article presents some stylized facts about insolvency in Canada’s household sector and analyzes the role of creditors in insolvencies. The average debt of an individual filing for bankruptcy is more than 1.5 times that of an average Canadian household; bankruptcy filers tend to be unemployed or in low-wage jobs, and are typically renters. The article reports that banks that approve more loans per branch, which is interpreted as less-intensive use of soft information (such as the loan officer’s assessment of the applicant’s character), experience more client bankruptcies. This finding has important policy implications, because financial institutions that do not use soft information risk further deterioration in their lending portfolios.

Deposit insurance protects depositors from failing banks, thus making insured deposits risk-free. When a deposit insurance limit is increased, some deposits that previously were uninsured become insured, thereby increasing the share of risk-free assets in households’ portfolios. This increase cannot simply be undone by households, because to invest in uninsured deposits, a household must first invest in insured deposits up to the limit. This basic insight is the starting point of the analysis in this paper.

Business cycles are substantially correlated across countries. Yet most existing models are not able to generate substantial transmission through international trade. We show that the nature of such transmission depends fundamentally on the features determining the responsiveness of labor supply and labor demand to international relative prices.