June 17, 2008 A Tool for Assessing Financial Vulnerabilities in the Household Sector Bank of Canada Review - Summer 2008 Shubhasis Dey, Ramdane Djoudad, Yaz Terajima In this article, the authors build on the framework used in the Bank of Canada's Financial System Review to assess the evolution of household indebtedness and financial vulnerabilities in response to changing economic conditions. To achieve this, they first compare two microdata sets generated by Ipsos Reid's Canadian Financial Monitor and Statistics Canada's Survey of Financial Security. They find that the surveys are broadly comparable, despite methodological differences. This enables them to use the combined information content for the identification of the threshold value of the debt-service ratio (DSR). The article then presents an innovative framework that uses household-level microdata to simulate changes in the distribution of the DSR under various stress scenarios. The authors show how this framework can be used by analyzing the effects of two different scenarios on the distribution of the debt-service ratio and the impact on vulnerable households. This tool will enable researchers to refine their analyses of current risks to the financial health of Canadian households. The article concludes with comments on future directions for refining the Bank's analyses of household sector risk. Content Type(s): Publications, Bank of Canada Review articles Research Topic(s): Econometric and statistical methods, Economic models, Financial stability
Empirical Likelihood Block Bootstrapping Staff Working Paper 2008-18 Jason Allen, Allan Gregory, Katsumi Shimotsu Monte Carlo evidence has made it clear that asymptotic tests based on generalized method of moments (GMM) estimation have disappointing size. The problem is exacerbated when the moment conditions are serially correlated. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods JEL Code(s): C, C1, C14, C2, C22
Markups in Canada: Have They Changed and Why? Staff Working Paper 2008-7 Danny Leung Many empirical studies have examined the cyclical nature of the markup ratio. Until recently, few have attempted to ascertain the changes in the markup over a longer time horizon. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods JEL Code(s): E, E3, E31, F, F4, F41, L, L1, L11
Default Dependence: The Equity Default Relationship Staff Working Paper 2008-1 Stuart Turnbull, Jun Yang The paper examines three equity-based structural models to study the nonlinear relationship between equity and credit default swap (CDS) prices. These models differ in the specification of the default barrier. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Financial markets JEL Code(s): G, G1, G12, G13
Estimation and Inference by the Method of Projection Minimum Distance Staff Working Paper 2007-56 Òscar Jordà, Sharon Kozicki A covariance-stationary vector of variables has a Wold representation whose coefficients can be semi-parametrically estimated by local projections (Jordà, 2005). Substituting the Wold representations for variables in model expressions generates restrictions that can be used by the method of minimum distance to estimate model parameters. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods JEL Code(s): C, C3, C32, C5, C53, E, E4, E47
Testing Uncovered Interest Parity: A Continuous-Time Approach Staff Working Paper 2007-53 Antonio Diez de los Rios, Enrique Sentana Nowadays researchers can choose the sampling frequency of exchange rates and interest rates. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Exchange rates JEL Code(s): F, F3, F31, G, G1, G15
Examining Simple Joint Macroeconomic and Term-Structure Models: A Practitioner's Perspective Staff Working Paper 2007-49 David Bolder, Shudan Liu The primary objective of this paper is to compare a variety of joint models of the term structure of interest rates and the macroeconomy. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Financial markets, Interest rates JEL Code(s): C, C0, C6, E, E4, G, G1
Multilateral Adjustment and Exchange Rate Dynamics: The Case of Three Commodity Currencies Staff Working Paper 2007-41 Jeannine Bailliu, Ali Dib, Takashi Kano, Lawrence L. Schembri In this paper, we empirically investigate whether multilateral adjustment to large U.S. external imbalances can help explain movements in the bilateral exchange rates of three commodity currencies – the Australian, Canadian and New Zealand (ACNZ) dollars. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Exchange rates JEL Code(s): C, C1, C11, C2, C22, F, F3, F31, F32
The Canadian Business Cycle: A Comparison of Models Staff Working Paper 2007-38 Frédérick Demers, Ryan Macdonald This paper examines the ability of linear and nonlinear models to replicate features of real Canadian GDP. We evaluate the models using various business-cycle metrics. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C3, C32, E, E3, E37
Managing Adverse Dependence for Portfolios of Collateral in Financial Infrastructures Staff Working Paper 2007-25 Alejandro García, Ramazan Gençay We propose a framework that allows a portfolio manager to quantify the probability of simultaneous losses in multiple assets of a collateral portfolio. Using this framework, we propose a methodology to conduct stress tests on the market value of the portfolio of collateral when undesirable extreme dependence occurs. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Financial markets, Financial stability JEL Code(s): C, C1, C10, G, G0, G00, G1, G10