Estimating Canada’s Effective Lower Bound Staff Analytical Note 2015-2 Jonathan Witmer, Jing Yang In 2009, the Bank of Canada set its effective lower bound (ELB) at 25 basis points (bps). Given the recent experience of Sweden, Denmark, Switzerland and the euro area with negative interest rates, we examine the economics of negative interest rates and suggest that cash storage costs are the source of a negative lower bound on interest rates. Content Type(s): Staff research, Staff analytical notes Topic(s): Central bank research, Monetary policy framework, Monetary policy implementation JEL Code(s): D, D5, D53, E, E4, E41, E43, E5, E58
Financial Crisis Resolution Staff Working Paper 2012-42 Josef Schroth This paper studies a dynamic version of the Holmstrom-Tirole model of intermediated finance. I show that competitive equilibria are not constrained efficient when the economy experiences a financial crisis. A pecuniary externality entails that banks’ desire to accumulate capital over time aggravates the scarcity of informed capital during the financial crisis. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial system regulation and policies JEL Code(s): D, D5, D53, E, E6, E60, G, G0, G01, G1, G10, G18
Do Low Interest Rates Sow the Seeds of Financial Crises? Staff Working Paper 2011-31 Simona Cociuba, Malik Shukayev, Alexander Ueberfeldt A view advanced in the aftermath of the late-2000s financial crisis is that lower than optimal interest rates lead to excessive risk taking by financial intermediaries. Content Type(s): Staff research, Staff working papers Topic(s): Financial system regulation and policies, Monetary policy transmission JEL Code(s): D, D5, D53, E, E4, E44, E5, E52, G, G2, G28