May 11, 2017 Why Is Global Business Investment So Weak? Some Insights from Advanced Economies Bank of Canada Review - Spring 2017 Robert Fay, Justin-Damien Guénette, Martin Leduc, Louis Morel Various drivers of business investment can be used to explain the underwhelming performance of investment in advanced economies since the global financial crisis, particularly since 2014. The slow growth in aggregate demand cannot by itself explain the full extent of the recent weakness in investment, which appears to be linked primarily to the collapse of global commodity prices and a rise in economic uncertainty. Looking ahead, business investment growth is likely to remain slower than in the pre-crisis period, largely because of structural factors such as population aging. Content Type(s): Publications, Bank of Canada Review articles Research Topic(s): Business fluctuations and cycles, Domestic demand and components, Economic models, International topics, Monetary policy and uncertainty, Recent economic and financial developments JEL Code(s): C, C2, C22, D, D2, D24, D8, D80, E, E2, E22, F, F0, F01, G, G3, G31
Markov‐Switching Three‐Pass Regression Filter Staff Working Paper 2017-13 Pierre Guérin, Danilo Leiva-Leon, Massimiliano Marcellino We introduce a new approach for the estimation of high-dimensional factor models with regime-switching factor loadings by extending the linear three-pass regression filter to settings where parameters can vary according to Markov processes. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods JEL Code(s): C, C2, C22, C23, C5, C53
Monetary Policy, Private Debt and Financial Stability Risks Staff Working Paper 2016-59 Gregory Bauer, Eleonora Granziera Can monetary policy be used to promote financial stability? We answer this question by estimating the impact of a monetary policy shock on private-sector leverage and the likelihood of a financial crisis. Impulse responses obtained from a panel VAR model of 18 advanced countries suggest that the debt-to-GDP ratio rises in the short run following an unexpected tightening in monetary policy. Content Type(s): Staff research, Staff working papers Research Topic(s): Credit and credit aggregates, Financial stability, Monetary policy, Monetary policy transmission JEL Code(s): C, C2, C21, C23, E, E5, E52, E58
Understanding Firms’ Inflation Expectations Using the Bank of Canada’s Business Outlook Survey Staff Working Paper 2016-7 Simon Richards, Matthieu Verstraete Inflation expectations are a key determinant of actual and future inflation and thus matter for the conduct of monetary policy. We study how firms form their inflation expectations using quarterly firm-level data from the Bank of Canada’s Business Outlook Survey, spanning the 2001 to 2015 period. Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Credibility, Econometric and statistical methods, Firm dynamics, Inflation and prices, Inflation targets, Monetary policy framework JEL Code(s): C, C1, C2, C25, D, D2, D21, D8, D84, E, E3, E31, E5, E52, E58
What Is Behind the Weakness in Global Investment? Staff Discussion Paper 2016-5 Maxime Leboeuf, Robert Fay The recovery in private business investment globally remains extremely weak more than seven years after the financial crisis. This paper contributes to the ongoing policy debate on the factors behind this weakness by analyzing the role of growth prospects and uncertainty in explaining developments in non-residential private business investment in large advanced economies since the crisis. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Business fluctuations and cycles, Central bank research, Domestic demand and components, Economic models, International topics, Monetary policy and uncertainty, Recent economic and financial developments JEL Code(s): C, C2, C23, C3, C33, D, D2, D24, D8, D80, D84, E, E2, E22, F, F0, F01, G, G3, G31
Debt Overhang and Deleveraging in the US Household Sector: Gauging the Impact on Consumption Staff Working Paper 2015-47 Bruno Albuquerque, Georgi Krustev Using a novel dataset for the US states, this paper examines whether household debt and the protracted debt deleveraging help explain the dismal performance of US consumption since 2007, in the aftermath of the housing bubble. Content Type(s): Staff research, Staff working papers Research Topic(s): Credit and credit aggregates, Econometric and statistical methods, International topics JEL Code(s): C, C1, C13, C2, C23, C5, C52, D, D1, D12, H, H3, H31
Heterogeneity in the Dynamic Effects of Uncertainty on Investment Staff Working Paper 2015-34 Sungje Byun, Soojin Jo How does aggregate profit uncertainty influence investment activity at the firm level? We propose a parsimonious adaptation of a factor-autoregressive conditional heteroscedasticity model to exploit information in a subindustry sales panel for an efficient and tractable estimation of aggregate volatility. Content Type(s): Staff research, Staff working papers Research Topic(s): Domestic demand and components, Econometric and statistical methods, International topics JEL Code(s): C, C2, C22, C23, D, D8, D80, E, E2, E22
International House Price Cycles, Monetary Policy and Risk Premiums Staff Working Paper 2014-54 Gregory Bauer Using a panel logit framework, the paper provides an estimate of the likelihood of a house price correction in 18 OECD countries. The analysis shows that a simple measure of the degree of house price overvaluation contains a lot of information about subsequent price reversals. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Housing JEL Code(s): C, C2, E, E4, E43, R, R2, R21
The Propagation of Industrial Business Cycles Staff Working Paper 2014-48 Maximo Camacho, Danilo Leiva-Leon This paper examines the business cycle linkages that propagate industry-specific business cycle shocks throughout the economy in a way that (sometimes) generates aggregated cycles. The transmission of sectoral business cycles is modelled through a multivariate Markov-switching model, which is estimated by Gibbs sampling. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Domestic demand and components, Econometric and statistical methods JEL Code(s): C, C2, C22, E, E2, E27, E3, E32
Sheep in Wolf’s Clothing: Using the Least Squares Criterion for Quantile Estimation Staff Working Paper 2014-24 Heng Chen Estimation of the quantile model, especially with a large data set, can be computationally burdensome. This paper proposes using the Gaussian approximation, also known as quantile coupling, to estimate a quantile model. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods JEL Code(s): C, C1, C13, C14, C2, C21