May 25, 2017 Project Jasper: Are Distributed Wholesale Payment Systems Feasible Yet? Financial System Review - June 2017 James Chapman, Rodney J. Garratt, Scott Hendry, Andrew McCormack, Wade McMahon This report describes a joint endeavour between public and private sectors to explore a wholesale payment system based on distributed ledger technology (DLT). They find that a stand-alone DLT system is unlikely to be as beneficial as a centralized payment system in terms of core operating costs; however, it could increase financial system efficiency as a result of integration with the broader financial market infrastructure. Content Type(s): Publications, Financial System Review articles Topic(s): Digital currencies and fintech, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E58, G, G2, G28
May 11, 2017 Unconventional Monetary Policy: The Perspective of a Small Open Economy Bank of Canada Review - Spring 2017 Jean-Sébastien Fontaine, Lena Suchanek, Jing Yang How do unconventional monetary policies like quantitative easing and negative interest rates affect domestic financial conditions and the broader economy in small open econo-mies, such as Canada? These policies are effective in depreciating the exchange rate in small open economies, while lower interest rates are also passed through to the economy, albeit only partially. When conventional monetary policy is close to its limits, fiscal policy may be a more important complement to monetary policy in a small economy, particularly if global demand for safe assets compresses long-term interest rates. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Interest rates, Monetary policy framework, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E5, E52, E58, E6, E61, E65
May 11, 2017 Wholesale Funding of the Big Six Canadian Banks Bank of Canada Review - Spring 2017 Matthieu Truno, Andriy Stolyarov, Danny Auger, Michel Assaf The Big Six Canadian banks are a dominant component of the Canadian financial system. How they finance their business activities is fundamental to how effective they are. Retail and commercial deposits along with wholesale funding represent the two major sources of funds for Canadian banks. What wholesale funding instruments do the Big Six banks use? How do they choose between different funding sources, funding strategies and why? How have banks changed their funding mix since the 2007–09 global financial crisis? Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial institutions, Financial markets, Financial system regulation and policies, Market structure and pricing, Wholesale funding JEL Code(s): E, E4, E44, F, F3, G, G0, G01, G1, G10, G12, G15, G2, G20, G21, G28, O, O1, O16
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 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
Downward Nominal Wage Rigidity Meets the Zero Lower Bound Staff Working Paper 2017-16 Robert Amano, Stefano Gnocchi We add downward nominal wage rigidity to a standard New Keynesian model with sticky prices and wages, where the zero lower bound on nominal interest rates is allowed to bind. We find that wage rigidity not only reduces the frequency of zero bound episodes but also mitigates the severity of corresponding recessions. Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets, Labour markets, Monetary policy framework JEL Code(s): E, E2, E24, E3, E32, E5, E52
Constrained Efficiency with Adverse Selection and Directed Search Staff Working Paper 2017-15 Mohammad Davoodalhosseini Constrained efficient allocation (CE) is characterized in a model of adverse selection and directed search (Guerrieri, Shimer, and Wright (2010)). CE is defined to be the allocation that maximizes welfare, the ex-ante utility of all agents, subject to the frictions of the environment. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial markets, Financial system regulation and policies, Market structure and pricing JEL Code(s): D, D8, D82, D83, E, E2, E24, G, G1, J, J3, J31, J6, J64
April 2017 Annual Reassessment of Potential Output Growth in Canada Staff Analytical Note 2017-5 Andrew Agopsowicz, Bassirou Gueye, Natalia Kyui, Youngmin Park, Mohanad Salameh, Ben Tomlin This note summarizes the Bank of Canada’s annual reassessment of potential output growth, conducted for the April 2017 Monetary Policy Report. Potential output growth is projected to increase from 1.3 per cent in 2017 to 1.6 per cent by 2020. Content Type(s): Staff research, Staff analytical notes Topic(s): Labour markets, Potential output, Productivity JEL Code(s): E, E0, E00, E2, E22, E23, E24, E3, E37, E6
A Canada-US Comparison of Labour Market Conditions Staff Analytical Note 2017-4 Dany Brouillette, Katerina Gribbin, Justin-Damien Guénette, James Ketcheson, Olena Kostyshyna, Jonathan Lachaine, Colin Scarffe In this note, we provide a brief comparison of the recent developments in the labour markets in Canada and the United States. Our analysis indicates that slack remains in the Canadian labour market, while the US labour market is close to full employment. Content Type(s): Staff research, Staff analytical notes Topic(s): Labour markets, Recent economic and financial developments JEL Code(s): E, E2, E24, J, J2, J21, J22, J23
Assessing Global Potential Output Growth Staff Analytical Note 2017-3 Patrick Alexander, Michael Francis, Christopher Hajzler, Patrick Kirby, Louis Poirier, Sri Thanabalasingam, Kristina Hess This note estimates potential output growth for the global economy through 2019. While there is considerable uncertainty surrounding our estimates, overall we expect global potential output growth to rise modestly, from 3.1 per cent in 2016 to 3.4 per cent in 2019. Content Type(s): Staff research, Staff analytical notes Topic(s): International topics, Potential output, Productivity JEL Code(s): E, E1, E10, E2, E20, O, O4
Anticipated Technology Shocks: A Re‐Evaluation Using Cointegrated Technologies Staff Working Paper 2017-11 Joel Wagner Two approaches have been taken in the literature to evaluate the relative importance of news shocks as a source of business cycle volatility. The first is an empirical approach that performs a structural vector autoregression to assess the relative importance of news shocks, while the second is a structural-model-based approach. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Productivity JEL Code(s): E, E3, E32