Staff research

• April 28, 2017

  Research Update - April 2017

  This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.

  Content Type(s): Staff research, Research newsletters

• Vertical Specialization and Gains from Trade

  Staff Working Paper 2017-17 Patrick Alexander

  Multi-stage production is widely recognized as an important feature of the modern global economy. This feature has been incorporated into many state-of-the-art quantitative trade models, and has been shown to deliver significant additional gains from international trade.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, International topics, Trade integration JEL Code(s): F, F1, F11, F14, F6, F60

• 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

• Strategic Complementarities and Money Market Fund Liquidity Management

  Staff Working Paper 2017-14 Jonathan Witmer

  Following the financial crisis, there has been increased regulatory focus on the management of liquidity in mutual funds and, specifically, whether funds hold enough liquidity to guard against the potential for investor runs.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets JEL Code(s): F, F3, F30, G, G0, G01, G1, G18, G2, G20

• 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 Topic(s): Econometric and statistical methods JEL Code(s): C, C2, C22, C23, C5, C53

• Accounting for Real Exchange Rates Using Micro‐Data

  Staff Working Paper 2017-12 Mario J. Crucini, Anthony Landry

  The classical dichotomy predicts that all of the time-series variance in the aggregate real exchange rate is accounted for by non-traded goods in the consumer price index (CPI) basket because traded goods obey the Law of One Price. In stark contrast, Engel (1999) claimed the opposite: that traded goods accounted for all of the variance.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, International financial markets, Trade integration JEL Code(s): F, F3

• 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