Markups and inflation during the COVID-19 pandemic Staff Analytical Note 2023-8 Olga Bilyk, Timothy Grieder, Mikael Khan We find that prices and costs for consumer-oriented firms moved roughly one-for-one during the COVID-19 pandemic. This means firms fully passed rising costs through to the prices they charged. However, our results are suggestive, given data limitations and the uncertainty associated with estimating markups. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Firm dynamics, Inflation and prices JEL Code(s): D, D2, D4, E, E2, E3, L, L1
SME Failures Under Large Liquidity Shocks: An Application to the COVID-19 Crisis Staff Working Paper 2023-32 Pierre-Olivier Gourinchas, Şebnem Kalemli-Özcan, Veronika Penciakova, Nicholas Sander We study the effects of financial frictions on firm exit when firms face large liquidity shocks. We develop a simple model of firm cost-minimization that introduces a financial friction that limits firms’ borrowing capacity to smooth temporary shocks to liquidity. Content Type(s): Staff research, Staff working papers Research Topic(s): Coronavirus disease (COVID-19), Firm dynamics, International topics JEL Code(s): D, D2, D21, D22, E, E6, E65, H, H8, H81
What we can learn by linking firms’ reported emissions with their financial data Staff Analytical Note 2023-4 Matthew Ackman, Timothy Grieder, Callie Symmers, Geneviève Vallée We analyze the financial statements and stock prices of publicly traded firms incorporated in Canada that report greenhouse gas emissions. We find that these firms primarily use equity financing. We also find that equity investors increasingly account for firms’ emissions when making investment decisions but the impact appears small. This suggests that assets exposed to climate change remain at risk of a sudden repricing. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Asset pricing, Climate change, Financial stability, Firm dynamics JEL Code(s): G, G1, G3, Q, Q5
Persistent Debt and Business Cycles in an Economy with Production Heterogeneity Staff Working Paper 2023-17 Aubhik Khan, Soyoung Lee We examine the role of debt in amplifying and propagating recessions. Firms’ debt adjustment makes recessions deeper but makes expansions gradual. In particular, when the aggregate business leverage is ten percentage points above average, the half-life of the recovery doubles. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Firm dynamics, Productivity JEL Code(s): E, E2, E23, E3, E30, E32
March 9, 2023 Economic progress report: Thinking globally, acting locally Remarks Carolyn Rogers Manitoba Chambers of Commerce Winnipeg, Manitoba Senior Deputy Governor Carolyn Rogers discusses the Bank’s latest interest rate decision and recent global and domestic developments, including how Canada’s economic and inflation experience compares with other countries. Content Type(s): Press, Speeches and appearances, Remarks Research Topic(s): Domestic demand and components, Firm dynamics, Inflation and prices, Inflation targets, Interest rates, International topics, Labour markets, Monetary policy, Price stability, Recent economic and financial developments
March 9, 2023 Understanding the reasons for high inflation Speech summary Carolyn Rogers Manitoba Chambers of Commerce Winnipeg, Manitoba Speaking a day after we decided to hold the policy rate, Senior Deputy Governor Carolyn Rogers talks about the factors behind high inflation and how we know inflation is falling. Content Type(s): Press, Speeches and appearances, Speech summaries Research Topic(s): Domestic demand and components, Firm dynamics, Inflation and prices, Inflation targets, Interest rates, International topics, Labour markets, Monetary policy, Price stability, Recent economic and financial developments
Firms’ inflation expectations and price-setting behaviour in Canada: Evidence from a business survey Staff Analytical Note 2023-3 Ramisha Asghar, James Fudurich, Jane Voll Canadian firms’ expectations for high inflation may be influencing their price setting, supporting strong price growth and delays in the transmission of monetary policy. Using data from the Business Outlook Survey, we investigate the reasons behind widespread price growth seen in Canada in 2021 and early 2022. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Firm dynamics, Inflation and prices, Monetary policy transmission, Recent economic and financial developments JEL Code(s): D, D2, D22, E, E3, E31
Exporting and Investment Under Credit Constraints Staff Working Paper 2023-10 Kim Huynh, Robert Petrunia, Joel Rodrigue, Walter Steingress We examine the relationship between firms’ performance and credit constraints affecting export market entry. Using administrative Canadian firm-level data, our findings show that new exporters (a) increase their productivity, (b) raise their leverage ratio and (c) increase investment. We estimate that 48 percent of Canadian manufacturers face binding credit constraints when deciding whether to enter export markets. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Firm dynamics, International topics, Productivity JEL Code(s): F, F1, F10, F14, F3, F36, G, G2, G20, G28, G3, G32
Financial Constraints and Corporate Investment in China Staff Discussion Paper 2022-22 Kun Mo, Michel Soudan Financial constraints deter firms from pursuing optimal investment plans. In China, we find privately owned firms face greater financial constraints than state-owned enterprises (SOEs). This can be explained by our finding that lenders appear less concerned about the credit risk of SOEs, which causes distortions in the allocation of credit. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Financial markets, Firm dynamics JEL Code(s): E, E2, E22, G, G1, G3
CANVAS: A Canadian Behavioral Agent-Based Model Staff Working Paper 2022-51 Cars Hommes, Mario He, Sebastian Poledna, Melissa Siqueira, Yang Zhang 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. Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Econometric and statistical methods, Economic models, Firm dynamics, Inflation and prices JEL Code(s): C, D, D2, D22, D8, D83, E, E1, E17