D8 - Information, Knowledge, and Uncertainty

• Counterfeit Quality and Verification in a Monetary Exchange

  Staff Working Paper 2011-4 Ben Fung, Enchuan Shao

  Recent studies on counterfeiting in a monetary search framework show that counterfeiting does not occur in a monetary equilibrium. These findings are inconsistent with the observation that counterfeiting of bank notes has been a serious problem in some countries.

  Content Type(s): Staff research, Staff working papers Topic(s): Bank notes JEL Code(s): D, D8, D82, D83, E, E4, E42, E5, E50

• Composition of International Capital Flows: A Survey

  Staff Working Paper 2010-33 Koralai Kirabaeva, Assaf Razin

  We survey several key mechanisms that explain the composition of international capital flows: foreign direct investment, foreign portfolio investment and debt flows (bank loans and bonds). In particular, we focus on the following market frictions: asymmetric information in capital markets and exposure to liquidity shocks.

  Content Type(s): Staff research, Staff working papers Topic(s): International topics JEL Code(s): D, D8, D82, F, F2, F21, F3, F34

• Adverse Selection, Liquidity, and Market Breakdown

  Staff Working Paper 2010-32 Koralai Kirabaeva

  This paper studies the interaction between adverse selection, liquidity risk and beliefs about systemic risk in determining market liquidity, asset prices and welfare. Even a small amount of adverse selection in the asset market can lead to fire-sale pricing and possibly to a market breakdown if it is accompanied by a flight-to-liquidity, a misassessment of systemic risk, or uncertainty about asset values.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Financial stability JEL Code(s): D, D8, D82, G, G0, G01, G1, G11

• Liquidity Transformation and Bank Capital Requirements

  Staff Working Paper 2010-22 Hajime Tomura

  This paper presents a dynamic general equilibrium model where asymmetric information about asset quality leads to asset illiquidity. Banking arises endogenously in this environment as banks can pool illiquid assets to average out their idiosyncratic qualities and issue liquid liabilities backed by pooled assets whose total quality is public information.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Financial system regulation and policies JEL Code(s): D, D8, D82, E, E4, E44, G, G2, G21

• Estimating the Structure of the Payment Network in the LVTS: An Application of Estimating Communities in Network Data

  Staff Working Paper 2010-13 James Chapman, Nellie Zhang

  In the Canadian large value payment system an important goal is to understand how liquidity is transferred through the system and hence how efficient the system is in settling payments. Understanding the structure of the underlying network of relationships between participants in the payment system is a crucial step in achieving the goal.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Payment clearing and settlement systems JEL Code(s): C, C1, C11, D, D8, D85, G, G2, G20

• Network Analysis and Canada's Large Value Transfer System

  Staff Discussion Paper 2009-13 Lana Embree, Tom Roberts

  Analysis of the characteristics and structure of a network of financial institutions can provide insight into the complex relationships and interdependencies that exist in a payment, clearing, and settlement system (PCSS), and allow an intuitive understanding of the PCSS's efficiency, stability, and resiliency.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Financial stability, Payment clearing and settlement systems JEL Code(s): D, D8, D85, G, G1, G10

• Information Flows and Aggregate Persistence

  Staff Working Paper 2009-11 Oleksiy Kryvtsov

  Models with imperfect information that generate persistent monetary nonneutrality predominantly rely on assumptions leading to substantial heterogeneity of information across price-setters. This paper develops a quantitative general equilibrium model in which the degree of heterogeneity of information is determined endogenously.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Inflation and prices, Monetary policy transmission JEL Code(s): D, D8, D83, E, E3, E31, E32

• The Role of Foreign Exchange Dealers in Providing Overnight Liquidity

  Staff Working Paper 2008-44 Chris D'Souza

  This paper illustrates that dealers in foreign exchange markets not only provide intraday liquidity, they are key participants in the provision of overnight liquidity. Dealing institutions receive compensation for holding undesired inventory balances in part from the information they receive in customer trades.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Financial markets, Market structure and pricing JEL Code(s): D, D8, D82, F, F3, F31, G, G2, G21

• Price Level versus Inflation Targeting under Model Uncertainty

  Staff Working Paper 2008-15 Gino Cateau

  The purpose of this paper is to make a quantitative contribution to the inflation versus price level targeting debate. It considers a policy-maker that can set policy either through an inflation targeting rule or a price level targeting rule to minimize a quadratic loss function using the actual projection model of the Bank of Canada (ToTEM).

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy and uncertainty JEL Code(s): D, D8, D81, E, E5, E58

• Efficient Hedging and Pricing of Equity-Linked Life Insurance Contracts on Several Risky Assets

  Staff Working Paper 2006-43 Alexander Melnikov, Yuliya Romanyuk

  The authors use the efficient hedging methodology for optimal pricing and hedging of equity-linked life insurance contracts whose payoff depends on the performance of several risky assets.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets JEL Code(s): D, D8, D81, G, G1, G10, G12