How Do Interest Rates Spur the Housing Market: Exploring Nonlinear Effects
In this note we examine how monetary policy affects housing demand, supply and prices in Canada, and whether these effects vary with labour market conditions
C - Mathematical and Quantitative Methods
-
-
Balancing Act: Monetary Policy Responses to Natural Disasters
Natural disasters can create important challenges for monetary policy in resource-rich small open economies. Using a DSGE model calibrated to Canada, we show that most disasters operate as adverse supply shocks, lowering output and raising inflation, thereby creating a trade-off for monetary policy. -
From Stress to Strategy: How Banks Balance the Scales
This paper develops a stress-testing framework in which banks strategically adjust their balance sheets in response to regulatory constraints and market conditions. Applied to Canada’s largest banks, it quantifies the effects of macroprudential policies on lending and identifies systemic vulnerabilities through reverse stress testing. -
Monte Carlo Likelihood-Ratio Tests for Markov Switching Models
This paper develops Monte Carlo likelihood-ratio tests for determining the number of regimes in Markov switching models. Unlike most existing procedures, which focus on testing one versus two regimes, the proposed methods allow testing an arbitrary number of regimes. They are valid in finite samples, robust to identification problems, and applicable to nonstationary, multivariate, and Markov switching GARCH models. -
Measuring the AI Economy
We construct a macroeconomic estimate of total AI production in the United States, combining inference and R&D/training activities with quality adjustments to account for algorithmic progress. We then develop a nascent framework for "AI GDP" that tracks the AI economy as a coherent whole, complementing traditional national accounts. -
Unpacking interest rate uncertainty in 2025
Amid heightened Canada–US trade tensions in 2025, financial markets showed signs that investors had greater difficulty anticipating near-term Bank of Canada interest rate decisions. We look at the Overnight Index Swap prices and intraday Government of Canada yields to identify the main driver of uncertainty around interest rate decisions. -
Central Bank Crisis Interventions and the Term Structure of Market Fear
How do central bank crisis interventions calm market fears? Using options data, we measure the perceived risk of large asset price drops across horizons from two weeks to ten years. Studying the Fed's response to the 2020 turmoil, we find asset purchases reduce short-term fears while interest rate actions shape long-term expectations. -
Climate Change and Socio-economic inequality in the US
This paper examines how climate change affects income inequality across US states. Using a new climate-inequality VAR and a century of daily temperature data, it shows that shifts across the full temperature distribution—not just average warming—have diverse effects on within-state inequality. -
Integrating Non-traditional Data and AI into Central Banking: A Canadian Perspective
This paper reviews how central banks are integrating non traditional data and artificial intelligence (AI) into policy analysis and operations. Using the Bank of Canada’s experience, it examines emerging applications, governance challenges, and strategic choices for responsibly scaling AI to enhance insight, efficiency, and institutional resilience. -
Beating the “pros” with a semi-structural model of their own inflation forecasts
How can Surveys of Professional Forecasters (SPF) be used to improve inflation forecasts? By using US historical quarterly data on SPF forecasts, we provide better understanding of how we can use forecast disagreement to improve our own forecasts.