Estimating the Policy Rule from Money Market Rates when Target Rate Changes Are Lumpy Staff Working Paper 2012-41 Jean-Sébastien Fontaine Most central banks effect changes to their target or policy rate in discrete increments (e.g., multiples of 0.25%) following public announcements on scheduled dates. Still, for most applications, researchers rely on the assumption that the policy rate changes linearly with economic conditions and they do not distinguish between dates with and without scheduled announcements. Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, E44, E47, G, G1, G12, G13
November 15, 2012 The Changing Landscape for Retail Payments in Canada and the Implications for the Demand for Cash Bank of Canada Review - Autumn 2012 Carlos Arango, Kim Huynh, Ben Fung, Gerald Stuber Over the past 20 years, there has been a major shift away from the use of paper-based retail payment instruments, such as cash and cheques, toward electronic means of payment, such as debit cards and credit cards. Recent Bank of Canada research on consumers’ choice of payment instruments indicates that cash is frequently used for transactions with low values because of its speed, ease of use and wide acceptance, while debit and credit cards are more commonly used for transactions with higher values because of perceived attributes such as safety and record keeping. While innovations in retail payments currently being introduced into the Canadian marketplace could lead to a further reduction in the use of cash over the longer term, the implications for the use of cash of some of the structural and regulatory developments under way are less clear. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Bank notes, Econometric and statistical methods, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C8, C83, E, E4, E42, G, G2, G28
Forecasting Inflation and the Inflation Risk Premiums Using Nominal Yields Staff Working Paper 2012-37 Bruno Feunou, Jean-Sébastien Fontaine We provide a decomposition of nominal yields into real yields, expectations of future inflation and inflation risk premiums when real bonds or inflation swaps are unavailable or unreliable due to their relative illiquidity. Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods, Inflation and prices, Interest rates JEL Code(s): E, E4, E43, E47, G, G1, G12
The Role of Credit in International Business Cycles Staff Working Paper 2012-36 TengTeng Xu This paper examines the role of bank credit in modeling and forecasting business cycle fluctuations, and investigates the international transmission of US credit shocks, using a global vector autoregressive (GVAR) framework and associated country-specific error correction models. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Econometric and statistical methods, International financial markets JEL Code(s): C, C3, C32, E, E3, E32, E4, E44, G, G2, G21
Financial Conditions and the Money-Output Relationship in Canada Staff Working Paper 2012-33 Maral Kichian We propose a drifting-coefficient model to empirically study the effect of money on output growth in Canada and to examine the role of prevailing financial conditions for that relationship. We show that such a time-varying approach can be a useful way of modelling the impact of money on growth, and can partly reconcile the lack of concensus in the literature on the question of whether money affects growth. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Monetary aggregates JEL Code(s): E, E4, E44, E5, E51
The Bank of Canada’s 2009 Methods-of-Payment Survey: Methodology and Key Results Staff Discussion Paper 2012-6 Carlos Arango, Angelika Welte The authors present the methodology and main findings of the Bank of Canada’s 2009 Methods-of-Payment survey, a detailed investigation of consumer payment behaviour in Canada. The survey targeted the 18- to 75-year-old Canadian resident population. Content Type(s): Staff research, Staff discussion papers Topic(s): Bank notes, Financial services, Payment clearing and settlement systems JEL Code(s): E, E4
August 16, 2012 Global Risk Premiums and the Transmission of Monetary Policy Bank of Canada Review - Summer 2012 Gregory Bauer, Antonio Diez de los Rios An important channel in the transmission of monetary policy is the relationship between the short-term policy rate and long-term interest rates. Using a new term-structure model, the authors show that the variation in long-term interest rates over time consists of two components: one representing investor expectations of future policy rates, and another reflecting a term-structure risk premium that compensates investors for holding a risky asset. The time variation in the term-structure risk premium is countercyclical and largely determined by global macroeconomic conditions. As a result, long-term rates are pushed up during recessions and down during times of expansion. This is an important phenomenon that central banks need to take into account when using short-term rates as a policy tool. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Asset pricing, Financial markets, Monetary policy transmission JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G12, G15
Estimating the Demand for Settlement Balances in the Canadian Large Value Transfer System Staff Working Paper 2012-15 Nellie Zhang This paper applies a static model of an interest rate corridor to the Canadian data, and estimates the aggregate demand for central-bank settlement balances in the Large Value Transfer System (LVTS). Content Type(s): Staff research, Staff working papers Topic(s): Interest rates, Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): C, C3, C36, E, E4, E40, E5, E50, G, G0, G01
May 17, 2012 Understanding Systemic Risk in the Banking Sector: A MacroFinancial Risk Assessment Framework Bank of Canada Review - Spring 2012 Céline Gauthier, Moez Souissi The MacroFinancial Risk Assessment Framework (MFRAF) models the interconnections between liquidity and solvency in a financial system, with multiple institutions linked through an interbank network. The MFRAF integrates funding liquidity risk as an endogenous outcome of the interactions between solvency risk and the liquidity profiles of banks, which is a complementary approach to the new […] Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial stability, Financial system regulation and policies JEL Code(s): E, E4, E44, G, G0, G01, G2, G21
May 17, 2012 Conference Summary: New Developments in Payments and Settlement Bank of Canada Review - Spring 2012 Ben Fung, Miguel Molico The Bank of Canada’s annual conference, held in November 2011, brought together leading researchers from universities, central banks and other institutions from around the world. Divided into four sessions plus two keynote addresses, the conference covered such topics as the use of cash and other means of payment in retail transactions, large-value payments systems, and […] Content Type(s): Publications, Bank of Canada Review articles Topic(s): Bank notes, Central bank research, Financial system regulation and policies, Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): E, E4, E42, G, G2, G28, L, L8, L81