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Carbon dioxide emissions have been commonly modelled as rising and falling with total output. Yet many factors, such as energy-efficiency improvements and shifts to cleaner energy, can break this relationship. We evaluate these factors using US data and find that changes in energy efficiency of consumption goods explain a significant proportion of emissions fluctuations. This finding also implies that models that omit energy efficiency likely overestimate the trade-off between environmental protection and economic performance.

We construct a multi-country affine term structure model that contains unspanned macroeconomic and foreign exchange risks. The canonical version of the model is derived and is shown to be easy to estimate.

Central banks communicate the results of open market operations. This helps participants in financial markets more accurately estimate the prevailing demand and supply conditions in the market for overnight loans.

When countries are hit by supply shocks, central banks often face the dilemma of either looking through such shocks or reacting to them to ensure that inflation expectations remain anchored. In this paper, we propose a tractable framework to capture this dilemma and then explore optimal policy under a range of assumptions about how expectations are formed.

Bank regulation presumes risks spill over more easily from large banks to the banking system than vice versa. Interestingly, we observe this is not the case. We find that the capacity to transmit risk is larger in the system-to-bank direction, leading to an increased default risk.

The authors examine the investment behaviour of a sample of small, credit-constrained firms in Sri Lanka. Using a unique panel-data set, they analyze and compare the activities of two groups of small firms distinguished by their different access to financing; one group consists of firms with heavily subsidized loans from the World Bank, and the other consists of firms without such subsidies.

Based on a new approach for measuring the comovements between stock market returns, we provide a nonparametric test for asymmetric comovements in the sense that stock market downturns will lead to stronger comovements than market upturns.

Our stress-testing tool considers banks under stress that can strategically manage their balance sheets. Using confidential Canadian supervisory data, we assess whether bank behaviour to maximize shareholder value can amplify a hypothetical stress scenario.

Senior Deputy Governor Carolyn A. Wilkins discusses public policy issues around monetary policy frameworks and how those issues have become more complex in the post-global financial crisis world.

Zero-coupon interest rates are the fundamental building block of fixed-income mathematics, and as such have an extensive number of applications in both finance and economics.