How well can large banks in Canada withstand a severe economic downturn? Staff Analytical Note 2022-6 Andisheh (Andy) Danaee, Harsimran Grewal, Brad Howell, Guillaume Ouellet Leblanc, Xuezhi Liu, Mayur Patel, Xiangjin Shen We examine the potential impacts of a severe economic shock on the resilience of major banks in Canada. We find these banks would suffer significant financial losses but nevertheless remain resilient. This underscores the role well-capitalized banks and sound underwriting practices play in supporting economic activity in a downturn. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial stability JEL Code(s): E, E2, E27, E3, E37, E4, E44, G, G1, G2, G21, G23
Financial Intermediaries and the Macroeconomy: Evidence from a High-Frequency Identification Staff Working Paper 2022-24 Pablo Ottonello, Wenting Song We provide empirical evidence of effects to the aggregate economy from surprises about financial intermediaries’ net worth based on a high-frequency identification strategy. We estimate that news of a 1% decline in intermediaries’ net worth leads to a 0.2%–0.4% decrease in the market value of nonfinancial firms. Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Business fluctuations and cycles, Credit and credit aggregates, Financial institutions, Financial markets, Financial system regulation and policies, Monetary and financial indicators JEL Code(s): E, E3, E32, E4, E44, E5, E51, G, G0, G01, G1, G12, G2, G21, G23, G24, G3, G32
Nowcasting Canadian GDP with Density Combinations Staff Discussion Paper 2022-12 Tony Chernis, Taylor Webley We present a tool for creating density nowcasts for Canadian real GDP growth. We demonstrate that the combined densities are a reliable and accurate tool for assessing the state of the economy and risks to the outlook. Content Type(s): Staff research, Staff discussion papers Topic(s): Econometric and statistical methods JEL Code(s): C, C5, C52, C53, E, E3, E7
Uncertainty and Monetary Policy Experimentation: Empirical Challenges and Insights from Academic Literature Staff Discussion Paper 2022-9 Matteo Cacciatore, Dmitry Matveev, Rodrigo Sekkel Central banks face considerable uncertainty when conducting monetary policy. The COVID-19 pandemic brought this issue back to the forefront of policy discussions. We draw from academic literature to review key sources of uncertainty and how they affect the conduct of monetary policy. Content Type(s): Staff research, Staff discussion papers Topic(s): Central bank research, Monetary policy and uncertainty, Potential output JEL Code(s): E, E3, E5
Potential output and the neutral rate in Canada: 2022 reassessment Staff Analytical Note 2022-3 Guyllaume Faucher, Christopher Hajzler, Martin Kuncl, Dmitry Matveev, Youngmin Park, Temel Taskin We expect potential output growth to be lower in 2021 than anticipated in the April 2021 assessment. By 2025, growth is expected to reach 2.3%. We assess that the Canadian nominal neutral rate increased slightly to lie in the range of 2.00% to 3.00%. Content Type(s): Staff research, Staff analytical notes Topic(s): Economic models, Interest rates, Labour markets, Monetary policy, Potential output, Productivity JEL Code(s): E, E2, E3, E4, E5
Job Ladder and Business Cycles Staff Working Paper 2022-14 Felipe Alves During downturns, workers get stuck in low-productivity jobs and wages remain stagnant. I build an heterogenous agent incomplete market model with a full job ladder that accounts for these facts. An adverse financial shock calibrated to the US Great Recession replicates the period’s slow recovery and missing disinflation. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Inflation and prices, Labour markets, Productivity JEL Code(s): D, D3, D31, D5, D52, E, E2, E21, E24, E3, E31, E32
Household Heterogeneity and the Performance of Monetary Policy Frameworks Staff Working Paper 2022-12 Edouard Djeutem, Mario He, Abeer Reza, Yang Zhang Consumption inequality and a low interest rate environment are two important trends in today’s economy. But the implications they may have—and how those implications interact—within different monetary policy frameworks are not well understood. We study the ranking of alternative frameworks that take these trends into account. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Monetary policy and uncertainty, Monetary policy framework, Monetary policy transmission JEL Code(s): D, D3, D31, D5, D52, E, E2, E21, E3, E31, E5, E52, E58
Macroeconomic Predictions Using Payments Data and Machine Learning Staff Working Paper 2022-10 James Chapman, Ajit Desai We demonstrate the usefulness of payment systems data and machine learning models for macroeconomic predictions and provide a set of econometric tools to overcome associated challenges. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Payment clearing and settlement systems JEL Code(s): C, C5, C53, C55, E, E3, E37, E4, E42, E5, E52
The Impact of Globalization and Digitalization on the Phillips Curve Staff Working Paper 2022-7 Christian Friedrich, Peter Selcuk Globalization is in retreat, yet digitalization is on the rise. How will these trends impact inflation? Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Inflation and prices, International topics, Labour markets, Recent economic and financial developments, Trade integration JEL Code(s): E, E3, E31, E32, F, F6
A Horse Race of Alternative Monetary Policy Regimes Under Bounded Rationality Staff Discussion Paper 2022-4 Joel Wagner, Tudor Schlanger, Yang Zhang We introduce bounded rationality in a canonical New Keynesian model calibrated to match Canadian macroeconomic data since Canada’s adoption of inflation targeting. We use the model to quantitatively assess the macroeconomic impact of alternative monetary policy regimes. Content Type(s): Staff research, Staff discussion papers Topic(s): Central bank research, Economic models, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E2, E27, E3, E4, E5, E52, E58