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The Bank of Canada’s current suite of models faces challenges in addressing network effects that integrate household and firm-level heterogeneity and their behaviours. We develop CANVAS, a Canadian behavioural agent-based model to contribute to the Bank’s next-generation modelling effort. CANVAS improves forecasting performance and expands capacity for model-based scenario analysis.

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.

We develop a model to analyze the link between financial leverage, worker pay structure and the risk of job termination. Contrary to the conventional view, we show that even in the absence of any agency problem among workers, variable pay can be optimal despite workers being risk averse and firms risk neutral.

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.

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Siamese Gaming Tokens

The tokens pictured here are part of the National Currency Collection, Bank of Canada.
Photography by Gord Carter, Ottawa.

This paper studies the effects of financial development, taking into account both formal and informal financing. Using cross-country firm-level data, we document that informal financing is utilized more by rich countries than poor countries.

Conventional models imply that central banks aiming to raise inflation should lower nominal rates and thus stimulate aggregate demand. However, several economists have recently challenged this conventional wisdom in favour of an alternative “neo-Fisherian’’ view under which higher nominal rates might in fact lead to higher inflation.

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.

The degree to which financial constraint is binding is often not directly observable in commonly used business data sets (e.g., Compustat). In this paper, we measure and estimate the likelihood of a firm being constrained by external financing using a data set of small- and medium-sized Canadian firms.