November 28, 2017
D - Microeconomics
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Identifying the Degree of Collusion Under Proportional Reduction
Proportional reduction is a common cartel practice in which cartel members reduce their output proportionately. We develop a method to quantify this reduction relative to a benchmark market equilibrium scenario and relate the reduction to the traditional conduct parameter. -
Cash Versus Card: Payment Discontinuities and the Burden of Holding Coins
Cash is the preferred method of payment for small value transactions generally less than $25. We provide insight to this finding with a new theoretical model that characterizes and compares consumers’ costs of paying with cash to paying with cards for each transaction. -
On the Tail Risk Premium in the Oil Market
This paper shows that changes in market participants’ fear of rare events implied by crude oil options contribute to oil price volatility and oil return predictability. Using 25 years of historical data, we document economically large tail risk premia that vary substantially over time and significantly forecast crude oil futures and spot returns. -
November 16, 2017
Acceptance and Use of Payments at the Point of Sale in Canada
Merchants universally accept cash. Consumers widely hold cash but also carry debit and credit cards. The cost of using a method of payment has only a small influence on which method consumers use. Large merchants accept all payments, while only two-thirds of small and medium-sized businesses accept credit cards. Merchants report that credit cards are the costliest payment method compared with cash and debit cards. However, costs are not the only consideration. Merchant acceptance of credit accounts for the many con-sumers that want to use credit cards. This interaction between consumers and merchants is known as network externalities. -
Digitalization and Inflation: A Review of the Literature
In the past few years, many have postulated that the possible disinflationary effects of digitalization could explain the subdued inflation in advanced economies. In this note, we review the evidence found in the literature. We look at three main channels. -
Digital Transformation in the Service Sector: Insights from Consultations with Firms in Wholesale, Retail and Logistics
Firms increasingly rely on digital technologies such as e-commerce, cloud computing, big data, digital tracking and digital platforms that are reshaping business operations, business models and market structures. In this context, the Bank of Canada consulted with firms in wholesale, retail and logistics, as well as with related industry associations to yield insights on the adoption of digital technologies. -
Identification of Random Resource Shares in Collective Households Without Preference Similarity Restrictions
Resource shares, defined as the fraction of total household spending going to each person in a household, are important for assessing individual material well-being, inequality and poverty. They are difficult to identify because consumption is measured typically at the household level, and many goods are jointly consumed, so that individual-level consumption in multi-person households is not directly observed. -
What’s Up with Unit Non-Response in the Bank of Canada’s Business Outlook Survey? The Effect of Staff Tenure
Since 1997, the Bank of Canada’s regional offices have been conducting the Business Outlook Survey (BOS), a quarterly survey of business conditions. Survey responses are gathered through face-to-face, confidential consultations with a sample of private sector firms representative of the various sectors, firm sizes and regions across Canada. -
Retrieving Implied Financial Networks from Bank Balance-Sheet and Market Data
In complex and interconnected banking systems, counterparty risk does not depend only on the risk of the immediate counterparty but also on the risk of others in the network of exposures.