Staff working papers

• Behavioral Learning Equilibria in New Keynesian Models

  Staff Working Paper 2022-42 Cars Hommes, Kostas Mavromatis, Tolga Özden, Mei Zhu

  We introduce behavioral learning equilibria (BLE) into DSGE models with boundedly rational agents using simple but optimal first order autoregressive forecasting rules. The Smets-Wouters DSGE model with BLE is estimated and fits well with inflation survey expectations. As a policy application, we show that learning requires a lower degree of interest rate smoothing.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Economic models, Inflation and prices, Monetary policy JEL Code(s): C, C1, C11, D, D8, D83, D84, E, E3, E6, E62

• Looking Through Supply Shocks versus Controlling Inflation Expectations: Understanding the Central Bank Dilemma

  Staff Working Paper 2022-41 Paul Beaudry, Thomas J. Carter, Amartya Lahiri

  Why might central banks want to look through supply-driven inflation sometimes and pivot away at other times? When does a change in monetary policy stance help anchor expectations? In this paper we present a simple environment that helps clarify these issues by offering an optimal policy perspective on recent central bank behaviour.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Economic models, Inflation and prices, Monetary policy, Monetary policy and uncertainty, Monetary policy communications JEL Code(s): E, E1, E12, E2, E24, E3, E31, E5, E52, E58, E6, E65

• Windfall Income Shocks with Finite Planning Horizons

  Staff Working Paper 2022-40 Michael Boutros

  How do households respond when they receive unanticipated income, such as an inheritance or government stimulus cheque? This paper studies these windfall income shocks through a model of household behaviour that generates a realistic consumption response for households along the entire distribution of wealth.

  Content Type(s): Staff research, Staff working papers Topic(s): Domestic demand and components, Economic models, Fiscal policy JEL Code(s): D, D9, D91, E, E2, E21, G, G5, G51

• House Price Responses to Monetary Policy Surprises: Evidence from the U.S. Listings Data

  Staff Working Paper 2022-39 Denis Gorea, Oleksiy Kryvtsov, Marianna Kudlyak

  Existing literature documents that house prices respond to monetary policy surprises with a significant delay, taking years to reach their peak response. We present new evidence of a much faster response.

  Content Type(s): Staff research, Staff working papers Topic(s): Housing, Inflation and prices, Interest rates, Monetary policy transmission JEL Code(s): E, E5, E52, R, R2, R21, R3, R31

• Sectoral Uncertainty

  Staff Working Paper 2022-38 Efrem Castelnuovo, Kerem Tuzcuoglu, Luis Uzeda

  We propose a new empirical framework that jointly decomposes the conditional variance of economic time series into a common and a sector-specific uncertainty component. We apply our framework to a disaggregated industrial production series for the US economy. We identify unexpected changes in durable goods uncertainty as drivers of downturns, while unexpected hikes in non-durable goods uncertainty are expansionary.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Monetary policy and uncertainty JEL Code(s): C, C5, C51, C55, E, E3, E32, E4, E44

• Risk and State-Dependent Financial Frictions

  Staff Working Paper 2022-37 Martin Harding, Rafael Wouters

  Using a nonlinear New Keynesian model with a financial accelerator, we show that financial frictions generate large state-dependent amplification effects. Shocks propagate more strongly in periods of financial stress. We propose an endogenous regime-switching DSGE framework for efficient estimation and improved model fit.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Credit and credit aggregates, Financial stability, Monetary policy JEL Code(s): E, E5, E52, E58

• Weather the Storms? Hurricanes, Technology and Oil Production

  Staff Working Paper 2022-36 Johan Brannlund, Geoffrey R. Dunbar, Reinhard Ellwanger, Matthew Krutkiewicz

  Do technological improvements mitigate the potential damages from extreme weather events? We show that hurricanes lower offshore oil production in the Gulf of Mexico and that stronger storms have larger impacts. Regulations enacted in 1980 that required improved offshore construction standards only modestly mitigated the production losses.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Climate change, Potential output JEL Code(s): C, C2, C22, C23, Q, Q4, Q40, Q48, Q5, Q54

• PayTech and the D(ata) N(etwork) A(ctivities) of BigTech Platforms

  Staff Working Paper 2022-35 Jonathan Chiu, Thorsten Koeppl

  Why do BigTech platforms introduce payment services? We explore this using a model in which a monopoly platform faces a trade-off between the costs associated with privacy concerns and the revenue from data services. We then analyze the feedback effects between data and payments.

  Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech, Payment clearing and settlement systems JEL Code(s): D, D8, E, E4, E42, L, L1

• How Do People View Price and Wage Inflation?

  Staff Working Paper 2022-34 Monica Jain, Olena Kostyshyna, Xu Zhang

  This paper examines household-level data from the Canadian Survey of Consumer Expectations (CSCE) to understand households’ expectations about price and wage inflation, how those expectations link to views about labour market conditions and the subsequent impact on households’ outlook for real spending growth.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Monetary policy communications JEL Code(s): C, C8, C83, D, D8, D84, E, E2, E21, E24, E3, E31

• A Horse Race of Monetary Policy Regimes: An Experimental Investigation

  Staff Working Paper 2022-33 Olena Kostyshyna, Luba Petersen, Jing Yang

  How should central banks design monetary policy in stable times and during recessions? We run a horse race between five monetary policy frameworks in an experimental laboratory to assess how well the different approaches can manage the public’s expectations and stabilize the economy.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets, Monetary policy, Monetary policy communications, Monetary policy framework JEL Code(s): C, C9, D, D8, D84, E, E5, E52, E58