Staff analytical notes

Foreign Flows and Their Effects on Government of Canada Yields

Staff Analytical Note 2015-1 Bruno Feunou, Jean-Sébastien Fontaine, James Kyeong, Jesus Sierra
Foreign investment flows into Government of Canada (GoC) bonds have surged since the financial crisis. Our empirical analysis suggests that foreign flows of $150 billion lowered the 10-year GoC bond yield by 100 basis points between 2009 and 2012.
Content Type(s): Staff research, Staff analytical notes Topic(s): International financial markets, International topics, Monetary policy transmission JEL Code(s): F, F3, F32

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Staff working papers

Search-for-Yield in Canadian Fixed-Income Mutual Funds and Monetary Policy

Staff Working Paper 2014-3 Sermin Gungor, Jesus Sierra
This paper investigates the effects of monetary policy on the risk-taking behavior of fixed-income mutual funds in Canada. We consider different measures of the stance of monetary policy and investigate active variation in mutual funds’ risk exposure in response to monetary policy.
Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Monetary policy transmission JEL Code(s): E, E5, E52, G, G2, G23

Consumer Interest Rates and Retail Mutual Fund Flows

Staff Working Paper 2012-39 Jesus Sierra
This paper documents a link between the real and financial sides of the economy. We find that retail equity mutual fund flows in Canada are negatively related to current and past changes in a component of the prime and 5-year mortgage rates that is uncorrelated with government rates.
Content Type(s): Staff research, Staff working papers Topic(s): Financial services, Interest rates JEL Code(s): G, G2, G21, G23

International Capital Flows and Bond Risk Premia

Staff Working Paper 2010-14 Jesus Sierra
This paper studies the impact of international capital flows on asset prices through risk premia. We investigate whether foreign purchases of U.S. Treasury securities significantly contributed to the decline in excess returns on long-term bonds between 1995 and 2008.
Content Type(s): Staff research, Staff working papers Topic(s): Financial markets JEL Code(s): C, C2, C22, F, F3, F31, F32, F34, G, G1, G11, G12, G15

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Bank publications

Bank of Canada Review articles

November 15, 2012

Monetary Policy and the Risk-Taking Channel: Insights from the Lending Behaviour of Banks

Bank of Canada Review - Autumn 2012 Teodora Paligorova, Jesus Sierra

The financial crisis of 2007-09 and the subsequent extended period of historically low real interest rates have revived the question of whether economic agents are willing to take on more risk when interest rates remain low for a prolonged time period. This increased appetite for risk, which causes economic agents to search for investment assets and strategies that generate higher investment returns, has been called the risk-taking channel of monetary policy. Recent academic research on banks suggests that lending policies in times of low interest rates can be consistent with the existence of a risk-taking channel of monetary policy in Europe, South America, the United States and Canada. Specifically, studies find that the terms of loans to risky borrowers become less stringent in periods of low interest rates. This risk-taking channel may amplify the effects of traditional transmission mechanisms, resulting in the creation of excessive credit.
Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial institutions, Monetary policy framework JEL Code(s): E, E5, E58, G, G2, G21

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Financial System Review articles

June 11, 2015

Canadian Open-End Mutual Funds: An Assessment of Potential Vulnerabilities

Financial System Review - June 2015 Sandra Ramirez, Jesus Sierra, Jonathan Witmer
The authors examine the liquidity and leverage characteristics of Canadian long-term, open-end mutual funds in terms of their potential systemic effects on the Canadian mutual fund sector and on the Canadian financial system more broadly. In their overall assessment of this sector, they consider the regulation, market size and ownership structure of mutual funds in Canada and provide observations about the industry globally.
Content Type(s): Publications, Financial System Review articles Topic(s): Financial institutions, Financial markets JEL Code(s): G, G2, G23, G28

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