Market structure and pricing
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A Review of the Bank of Canada’s Support of Key Financial Markets During the COVID-19 Crisis
The COVID-19 pandemic placed unprecedented strain on the global financial system. We describe how the Bank of Canada responded to the rapidly deteriorating liquidity in core Canadian fixed-income markets. -
The Role of Intermediaries in Selection Markets: Evidence from Mortgage Lending
This paper looks at the role mortgage brokers play in helping borrowers generate quotes and qualify for credit. We find that, on average, borrowers that engage with a mortgage broker pay lower interest rates. However, in about 15% of cases, borrowers are steered towards longer amortizing mortgages than they would have chosen absent a broker. Since mortgages with longer amortization have higher total interest costs over the entire life of the mortgage, this steering is expensive. -
Fixed-income dealing and central bank interventions
We summarize the theoretical model of central bank asset purchases developed in Cimon and Walton (2022). The model helps us understand how asset purchases ease pressures on investment dealers to restore market conditions in a crisis. -
Vertical Bargaining and Obfuscation
Is obscuring prices always bad for consumers? The answer depends on the market structure and on the negotiating power between manufacturers and retailers. -
Central Bank Liquidity Facilities and Market Making
We create a theoretical model of central bank asset purchases. The model helps explain how, in a crisis, these purchases ease pressures on investment dealers. -
February 2, 2022
A Canadian interest rate benchmark regime for the future
Deputy Governor Toni Gravelle discusses some important changes that may be coming to Canada’s interest rate benchmarks. -
Foreign Exchange Fixings and Returns Around the Clock
We document a new empirical finding in the foreign exchange market: currency returns show systematic reversals around the benchmark fixings. Specifically, the US dollar, on average, appreciates in the hours before fixes and depreciates after fixes. -
Rising US LNG Exports and Global Natural Gas Price Convergence
We assess how rising exports of US liquefied natural gas affect the convergence of natural gas prices worldwide. Our results may have implications for the development of future LNG export capacity in Canada. -
Centralizing Over-the-Counter Markets?
Would a shift in trading in fixed-income markets—from over the counter (bilateral trading) to a centralized electronic platform—improve welfare? We use trade-level data on the secondary market for Government of Canada debt to answer this question.