Aggregate Fluctuations and the Role of Trade Credit Staff working paper 2017-37 Lin Shao In an economy where production takes place in multiple stages and is subject to financial frictions, how firms finance intermediate inputs matters for aggregate outcomes. This paper focuses on trade credit—the lending and borrowing of input goods between firms—and quantifies its aggregate impacts during the Great Recession. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E3, E32, E4, E44, E5, E51 Research Theme(s): Financial system, Financial institutions and intermediation, Household and business credit, Monetary policy, Real economy and forecasting
The Rise of Non-Regulated Financial Intermediaries in the Housing Sector and its Macroeconomic Implications Staff working paper 2017-36 Hélène Desgagnés I examine the impact of non-regulated lenders in the mortgage market using a dynamic stochastic general equilibrium (DSGE) model. My model features two types of financial intermediaries that differ in three ways: (i) only regulated intermediaries face a capital requirement, (ii) non-regulated intermediaries finance themselves by selling securities and cannot accept deposits, and (iii) non-regulated intermediaries face a more elastic demand. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E3, E32, E4, E44, E47, E6, E60, G, G2, G21, G23, G28 Research Theme(s): Financial system, Financial institutions and intermediation, Financial stability and systemic risk, Household and business credit, Models and tools, Economic models
A Structural Interpretation of the Recent Weakness in Business Investment Staff analytical note 2017-7 Russell Barnett, Rhys R. Mendes Since 2012, business investment growth has slowed considerably in advanced economies, averaging a little less than 2 per cent versus the 4 per cent growth rates experienced in the period leading up to crisis. Several recent studies have attributed a large part of the weakness in business investment to cyclical factors, including soft aggregate demand, and, to a lesser degree, heightened uncertainty and tighter financial conditions. Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E2, E22, E3, E37 Research Theme(s): Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Real economy and forecasting, Structural challenges, Demographics and labour supply
Understanding the Cross‐Country Effects of US Technology Shocks Staff working paper 2017-23 Thuy Lan Nguyen, Wataru Miyamoto 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. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E3, E30, F, F4, F41, F44, F6, F62 Research Theme(s): Models and tools, Economic models, Monetary policy, Real economy and forecasting, Structural challenges, International trade, finance and competitiveness
A Three‐Frequency Dynamic Factor Model for Nowcasting Canadian Provincial GDP Growth Staff discussion paper 2017-8 Tony Chernis, Gabriella Velasco, Calista Cheung This paper estimates a three‐frequency dynamic factor model for nowcasting Canadian provincial gross domestic product (GDP). Canadian provincial GDP is released by Statistics Canada on an annual basis only, with a significant lag (11 months). Content Type(s): Staff research, Staff discussion papers JEL Code(s): C, C5, C53, E, E3, E32, E37, R, R1, R11 Research Theme(s): Models and tools, Econometric, statistical and computational methods, Economic models, Monetary policy, Real economy and forecasting
Downward Nominal Wage Rigidity, Inflation and Unemployment: New Evidence Using Micro‐Level Data Staff analytical note 2017-6 Dany Brouillette, Natalia Kyui Recent evidence suggests that the extent of downward nominal wage rigidity (DNWR) in the Canadian labour market has risen following the 2008–09 recession (see Brouillette, Kostyshyna and Kyui 2016). Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E2, E24, E3, E31, J, J3, J30 Research Theme(s): Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Real economy and forecasting, Structural challenges, Demographics and labour supply
Should Central Banks Worry About Nonlinearities of their Large-Scale Macroeconomic Models? Staff working paper 2017-21 Vadym Lepetyuk, Lilia Maliar, Serguei Maliar How wrong could policymakers be when using linearized solutions to their macroeconomic models instead of nonlinear global solutions? Content Type(s): Staff research, Staff working papers JEL Code(s): C, C6, C61, C63, C68, E, E3, E31, E5, E52 Research Theme(s): Models and tools, Econometric, statistical and computational methods, Economic models, Monetary policy, Monetary policy framework and transmission
Volatility Risk and Economic Welfare Staff working paper 2017-20 Shaofeng Xu This paper examines the effects of time-varying volatility on welfare. I construct a tractable endogenous growth model with recursive preferences, stochastic volatility, and capital adjustment costs. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E3 Research Theme(s): Financial markets and funds management, Market functioning, Models and tools, Economic models, Monetary policy, Real economy and forecasting
Downward Nominal Wage Rigidity Meets the Zero Lower Bound Staff working paper 2017-16 Robert Amano, Stefano Gnocchi We add downward nominal wage rigidity to a standard New Keynesian model with sticky prices and wages, where the zero lower bound on nominal interest rates is allowed to bind. We find that wage rigidity not only reduces the frequency of zero bound episodes but also mitigates the severity of corresponding recessions. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E24, E3, E32, E5, E52 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission, Real economy and forecasting
April 2017 Annual Reassessment of Potential Output Growth in Canada Staff analytical note 2017-5 Andrew Agopsowicz, Bassirou Gueye, Natalia Kyui, Youngmin Park, Mohanad Salameh, Ben Tomlin This note summarizes the Bank of Canada’s annual reassessment of potential output growth, conducted for the April 2017 Monetary Policy Report. Potential output growth is projected to increase from 1.3 per cent in 2017 to 1.6 per cent by 2020. Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E0, E00, E2, E22, E23, E24, E3, E37, E6 Research Theme(s): Monetary policy, Real economy and forecasting, Structural challenges, Demographics and labour supply