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We use vector autoregressions with drifting coefficients and stochastic volatility to investigate how the dynamic effects of oil supply shocks on the U.S. economy have changed over time. We find a substantial decline in the short-run price elasticity of oil demand since the mid-eighties.

Understanding how much of the increased debt load of Canadian households has been used to finance household spending on consumption and home renovation is important for the conduct of monetary policy. In this article, the authors use a comprehensive data set that provides information on the uses of debt by Canadian households. They first present some facts regarding the evolution of Canadian household debt over the period from 1999 to 2010, emphasizing the increased importance of debt flows that are secured by housing. They then explore how Canadian households have used their borrowed funds over the same period, and assess the role of these borrowed funds in financing total consumption and spending on home renovation. Finally, they examine the possible effects of a decline in house prices on consumption when housing equity is used as collateral against household indebtedness.

Consumption volatility relative to output volatility is consistently higher in emerging economies than in developed economies.

An international initiative to increase the use of central clearing for OTC derivatives emerged as one of the reactions to the 2008 financial crisis. The move to central clearing is a fundamental change in the structure of the market.

We present a model of central bank collateralized lending to study the optimal choice of the haircut policy. We show that a lending facility provides a bundle of two types of insurance: insurance against liquidity risk as well as insurance against downside risk of the collateral.

Following the financial crisis, there has been increased regulatory focus on the management of liquidity in mutual funds and, specifically, whether funds hold enough liquidity to guard against the potential for investor runs.

When lenders cannot directly identify behavioural and rational borrowers, they use type scoring to track the likelihood of a borrower’s type. This leads to the partial pooling of borrowers, which results in rational borrowers subsidizing borrowing costs for behavioural borrowers. This, in turn, reduces the effectiveness of regulatory policies that target mistakes by behavioural borrowers.

Under bond-rate transmission of monetary policy, the authors show that a generalized Taylor Principle applies, in which the average anticipated path of policy responses to inflation is subject to a lower bound of unity. This result helps explain how bond rates may exhibit stable responses to inflation, even in periods of passive policy.

This paper derives analytical gradients for a broad class of regime-switching models with Markovian state-transition probabilities. Such models are usually estimated by maximum likelihood methods, which require the derivatives of the likelihood function with respect to the parameter vector. These gradients are usually calculated by means of numerical techniques. The paper shows that analytical gradients […]

The author compares the performance of three Gaussian approximation methods - by Nowman (1997), Shoji and Ozaki (1998), and Yu and Phillips (2001) - in estimating a model of the nonlinear continuous-time short-term interest rate.