G1 - General Financial Markets

• Alternative Futures for Government of Canada Debt Management

  Staff Discussion Paper 2018-15 Corey Garriott, Sophie Lefebvre, Guillaume Nolin, Francisco Rivadeneyra, Adrian Walton

  This paper presents four blue-sky ideas for lowering the cost of the Government of Canada’s debt without increasing the debt’s risk profile. We argue that each idea would improve the secondary-market liquidity of government debt, thereby increasing the demand for government bonds and thus lowering their cost at issuance.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Debt management, Financial markets, Market structure and pricing JEL Code(s): G, G1, G12, G2, G24, H, H6, H63

• The Impact of Surprising Monetary Policy Announcements on Exchange Rate Volatility

  Staff Analytical Note 2018-39 Adam Albogatchiev, Jean-Sébastien Fontaine, Jabir Sandhu, Reginald Xie

  We identify a few Bank of Canada press releases that had the largest immediate impact on the exchange rate market. We find that volatility increases after these releases, but the effect is short-lived and mostly dissipates after the first hour, on average. Beyond the first hour, the size of the effect is similar to what we observe for other economic releases, such as those for inflation or economic growth data.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Exchange rates, Financial markets, Monetary policy JEL Code(s): E, E4, E44, F, F3, F31, G, G1, G10, G12, G14, G15

• Markets Look Beyond the Headline

  Staff Analytical Note 2018-37 Bruno Feunou, James Kyeong, Raisa Leiderman

  Many reports and analyses interpret the release of new economic data based on the headline surprise—for instance, total inflation, real GDP growth and the unemployment rate. However, we find that headline news alone cannot adequately explain the responses of market prices to new information. Rather, market prices react more strongly, on average, to non-headline news such as the composition of GDP growth, quality of jobs created and revisions to past data. Thus, tracking the impact of non-headline information released on the news day is crucial in analyzing how markets interpret and react to new economic data.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Asset pricing, Exchange rates, Interest rates JEL Code(s): E, E4, E43, G, G1, G12, G14

• Macroprudential FX Regulations: Shifting the Snowbanks of FX Vulnerability?

  Staff Working Paper 2018-55 Toni Ahnert, Kristin Forbes, Christian Friedrich, Dennis Reinhardt

  Can macroprudential foreign exchange (FX) regulations on banks reduce the financial and macroeconomic vulnerabilities created by borrowing in foreign currency? To evaluate the effectiveness and unintended consequences of macroprudential FX regulations, we develop a parsimonious model of bank and market lending in domestic and foreign currency and derive four predictions.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Financial institutions, Financial system regulation and policies, International financial markets JEL Code(s): F, F3, F32, F34, G, G1, G15, G2, G21, G28

• Calibrating the Magnitude of the Countercyclical Capital Buffer Using Market-Based Stress Tests

  Staff Working Paper 2018-54 Maarten van Oordt

  How much capital do banks need as a buffer to absorb severe shocks? By using historical stock market data, market-based stress tests help estimate the magnitude of capital buffers necessary to absorb severe but plausible shocks.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): G, G1, G10, G2, G21, G28

• Assessing Vulnerabilities in Emerging-Market Economies

  Staff Discussion Paper 2018-13 Tatjana Dahlhaus, Alexander Lam

  This paper introduces a new tool to monitor economic and financial vulnerabilities in emerging-market economies. We obtain vulnerability indexes for several early warning indicators covering 26 emerging markets from 1990 to 2017 and use them to monitor the evolution of vulnerabilities before, during and after an economic or financial crisis.

  Content Type(s): Staff research, Staff discussion papers Topic(s): International topics, Monetary and financial indicators, Recent economic and financial developments JEL Code(s): C, C8, C82, F, F3, F34, G, G0, G01, G1, G15

• Characterizing the Canadian Financial Cycle with Frequency Filtering Approaches

  Staff Analytical Note 2018-34 Andrew Lee-Poy

  In this note, I use two multivariate frequency filtering approaches to characterize the Canadian financial cycle by capturing fluctuations in the underlying variables with respect to a long-term trend. The first approach is a dynamically weighted composite, and the second is a stochastic cycle model.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Financial stability, Monetary and financial indicators, Recent economic and financial developments JEL Code(s): C, C0, C01, C1, C13, C14, C18, C3, C32, C5, C51, C52, E, E3, E32, E6, E66, G, G0, G01, G1, G18

• Multibank Holding Companies and Bank Stability

  Staff Working Paper 2018-51 Radoslav Raykov, Consuelo Silva-Buston

  This paper studies the relationship between bank holding company affiliation and the individual and systemic risk of banks. Using the 2005 hurricane season in the US as an exogenous shock to bank balance sheets, we show that banks that are part of a holding parent company are more resilient than independent banks.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability JEL Code(s): G, G1, G2

• The Size and Destination of China’s Portfolio Outflows

  Staff Discussion Paper 2018-11 Rose Cunningham, Eden Hatzvi, Kun Mo

  The size of China’s financial system raises the possibility that the liberalization of its capital account could have a large effect on the global financial system. This paper provides a counterfactual scenario analysis that estimates what the size and direction of China’s overseas portfolio investments would have been in 2015 if China had had no restrictions on these outflows.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Balance of payments and components, Econometric and statistical methods, International topics JEL Code(s): C, C2, C23, F, F2, F21, F3, F32, G, G1, G15

• Have Liquidity and Trading Activity in the Canadian Corporate Bond Market Deteriorated?

  Staff Analytical Note 2018-31 Chen Fan, Sermin Gungor, Guillaume Nolin, Jun Yang

  Since 2010, the liquidity of corporate bonds has improved on average, while their trading activity has remained stable. We find that the liquidity and trading activity of riskier bonds or bonds issued by firms in different sectors have been stable. However, the liquidity and trading activity of bonds issued by banks have improved. We observe short-lived episodes of deterioration in liquidity and trading activity.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets JEL Code(s): G, G1, G12, G14