Search

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.

Cover page

Ready References

The book is part of the National Currency Collection, Bank of Canada.
Photography by Gord Carter, Ottawa.

The financial system makes an important contribution to the welfare of all Canadians. The ability of households and firms to confidently hold and transfer financial assets is one of the fundamental building blocks of the Canadian economy.

At the Pittsburgh Summit in 2009, G20 countries announced their commitment to clear all standardized over-the-counter (OTC) derivatives through central counterparties (CCPs). Since then, CCPs have become increasingly important and there has been an extensive program of regulatory enhancements to both them and OTC derivatives markets.

This paper compiles the contemporary view on three major Canadian-led trade policies that have marked Canada’s economic history since Confederation: the National Policy (1879), the Canada–US Agreement on Automotive Products (Auto Pact, 1965) and the Canada–US Free Trade Agreement (FTA, 1989, including its extension to the North American Free Trade Agreement, NAFTA, 1994).

When players repeatedly face an identical or similar game (e.g., coordination game, technology adoption game, or product choice game), they may learn through experience to perform better in the future. This learning behaviour has important economic implications.

We analyze monetary policy responses to AI in a two-sector New Keynesian model, distinguishing augmentation and automation. Both reduce labor demand, requiring accommodation that creates inflation trade-offs. Automation worsens them. Aggregate inflation depends on AI’s form and breadth, making policy stabilization more complex and aggregate data potentially misleading.

This article explores the evolution of capital flows to emerging markets over the last 30 years with emphasis on the past decade. Capital markets in emerging-market economies have evolved substantially over the period, becoming increasingly deep and resilient. The author looks at how capital flows to these countries have changed in terms of magnitude, geographical distribution, the financial instruments used, and the country of origin. He also examines how changes in the investor base have affected these flows and reviews the factors underlying the growth of private capital flows in the 1990s.

We study whether the credit derivatives of firms reflect the risk from climate transition. We find that climate transition risk has asymmetric and significant economic impacts on the credit risk of more vulnerable firms, and negligible effects on other firms.

This paper studies, theoretically and empirically, the unintended consequences of mandatory retention rules in securitization. It proposes a novel model showing that while retention strengthens monitoring, it may also encourage banks to shift risk.