Staff working papers

• (Un)Conventional Monetary and Fiscal Policy

  Staff Working Paper 2023-6 Jing Cynthia Wu, Yinxi Xie

  We build a tractable New Keynesian model to study and compare four types of monetary and fiscal policy: policy rate adjustments, quantitative easing, lump-sum fiscal transfers and government spending. We find that tax-financed fiscal policy is more stimulative than debt-financed policy, and optimal policy coordination needs at least two of these four policy instruments.

  Content Type(s): Staff research, Staff working papers Topic(s): Fiscal policy, Monetary policy JEL Code(s): E, E4, E6, E61, E62, E63

• Gazing at r-star: A Hysteresis Perspective

  Staff Working Paper 2023-5 Paul Beaudry, Katya Kartashova, Césaire Meh

  Many explanations for the decline in real interest rates over the last 30 years point to the role that population aging or rising income inequality plays in increasing the long-run aggregate demand for assets. Notwithstanding the importance of such factors, the starting point of this paper is to show that the major change driving household asset demand over this period is instead an increased desire—for a given age and income level—to hold assets.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Fiscal policy, Inflation and prices, Inflation targets, Interest rates, Monetary policy, Monetary policy framework JEL Code(s): E, E2, E21, E3, E31, E4, E43, E5, E52, E58, E6, E62, G, G5, G51, H, H6

• Macroeconomic Disasters and Consumption Smoothing: International Evidence from Historical Data

  Staff Working Paper 2023-4 Lorenzo Pozzi, Barbara Sadaba

  Does consumption smoothing fundamentally decrease during macroeconomic disasters? This paper uses a large historical dataset (1870–2016) for 16 industrial economies to show that during macroeconomic disasters (e.g., wars, pandemics, depressions) aggregate consumption and income are significantly less decoupled than during normal times.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Coronavirus disease (COVID-19), Econometric and statistical methods JEL Code(s): C, C2, C23, E, E2, E21

• Mandatory Retention Rules and Bank Risk

  Staff Working Paper 2023-3 Yuteng Cheng

  This paper studies, theoretically and empirically, the unintended consequences of mandatory retention rules in securitization. It proposes a novel model showing that while retention strengthens monitoring, it may also encourage banks to shift risk.

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

• Geographical and Cultural Proximity in Retail Banking

  Staff Working Paper 2023-2 Santiago Carbo-Valverde, Héctor Pérez Saiz, Hongyu Xiao

  This paper measures how both geographical and cultural proximity of bank branches affect household credit choice and pricing. For credit products that require high levels of ex-ante screening, we find that both proximities can complement each other in reducing the cost of providing soft information, thereby increasing credit access.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial institutions, Financial services JEL Code(s): D, D8, D82, D83, G, G2, G20, G21, R, R2, R22, Z, Z1, Z10, Z13

• Simulating Intraday Transactions in the Canadian Retail Batch System

  Staff Working Paper 2023-1 Nellie Zhang

  This paper proposes a unique approach to simulate intraday transactions in the Canadian retail payments batch system when such transactions are unobtainable. The simulation procedure has potential for helping with data-deficient problems where only high-level aggregate information is available.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Payment clearing and settlement systems JEL Code(s): C, C6, C63, E, E4, E42, E5, E58

• Improving the Efficiency of Payments Systems Using Quantum Computing

  Staff Working Paper 2022-53 Christopher McMahon, Donald McGillivray, Ajit Desai, Francisco Rivadeneyra, Jean-Paul Lam, Thomas Lo, Danica Marsden, Vladimir Skavysh

  We develop an algorithm and run it on a hybrid quantum annealing solver to find an ordering of payments that reduces the amount of system liquidity necessary without substantially increasing payment delays.

  Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech, Financial institutions, Financial services, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C6, C61, C63, D, D8, D83, E, E4, E42, E5, E58

• Are Temporary Oil Supply Shocks Real?

  Staff Working Paper 2022-52 Johan Brannlund, Geoffrey R. Dunbar, Reinhard Ellwanger

  Hurricanes disrupt oil production in the Gulf of Mexico because producers shut in oil platforms to safeguard lives and prevent damage. We examine the effects of these temporary oil supply shocks on real economic activity in the United States.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Inflation and prices JEL Code(s): E, E3, E31, E32, Q, Q3, Q31, Q4, Q41, Q43

• CANVAS: A Canadian Behavioral Agent-Based Model

  Staff Working Paper 2022-51 Cars Hommes, Mario He, Sebastian Poledna, Melissa Siqueira, Yang Zhang

  The Bank of Canada’s current suite of models faces challenges in addressing network effects that integrate household and firm-level heterogeneity and their behaviours. We develop CANVAS, a Canadian behavioural agent-based model to contribute to the Bank’s next-generation modelling effort. CANVAS improves forecasting performance and expands capacity for model-based scenario analysis.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Econometric and statistical methods, Economic models, Firm dynamics, Inflation and prices JEL Code(s): C, D, D2, D22, D8, D83, E, E1, E17

• Understanding Post-COVID Inflation Dynamics

  Staff Working Paper 2022-50 Martin Harding, Jesper Lindé, Mathias Trabandt

  We propose a macroeconomic model with a nonlinear Phillips curve that has a flat slope when inflationary pressures are subdued and steepens when inflationary pressures are elevated. Our model can generate more sizable inflation surges due to cost-push and demand shocks than a standard linearized model when inflation is high.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Central bank research, Coronavirus disease (COVID-19), Economic models, Inflation and prices, Inflation: costs and benefits, Monetary policy, Monetary policy implementation JEL Code(s): E, E3, E30, E31, E32, E37, E4, E44, E5, E52