E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
-
-
Frictional Capital Reallocation I: Ex Ante Heterogeneity
This paper studies dynamic general equilibrium models where firms trade capital in frictional markets. Gains from trade arise due to ex ante heterogeneity: some firms are better at investment, so they build capital in the primary market; others acquire it in the secondary market. -
Can Capital Deepening Explain the Global Decline in Labor’s Share?
We estimate an aggregate elasticity of substitution between capital and labor near or below one, which implies that capital deepening cannot explain the global decline in labor's share. Our methodology derives from transition paths in the neo-classical growth model. -
The Role of Corporate Saving over the Business Cycle: Shock Absorber or Amplifier?
We document countercyclical corporate saving behavior with the degree of countercyclicality varying nonmonotonically with firm size. We then develop a dynamic stochastic general equilibrium model with heterogeneous firms to explain the pattern and study its implications for business cycles. -
Fundamental Drivers of Existing Home Sales in Canada
Existing home sales’ share of Canada’s economic pie has been rising in recent years, and variation around this trend has resulted in outsized contributions to changes in real gross domestic product (GDP). In this context, we use a cointegration framework to estimate the level of resale activity across the Canadian provinces that is supported by fundamentals—namely, full-time employment, housing affordability and migration flows—to help look through the volatility. -
Modelling the Macrofinancial Effects of a House Price Correction in Canada
We use a suite of risk-assessment models to examine the possible impact of a hypothetical house price correction, centred in the Toronto and Vancouver areas. We also assume financial stress significantly amplifies the macroeconomic impact of the house price decline. -
The Framework for Risk Identification and Assessment
Risk assessment models are an important component of the Bank’s analytical tool kit for assessing the resilience of the financial system. We describe the Framework for Risk Identification and Assessment (FRIDA), a suite of models developed at the Bank of Canada to quantify the impact of financial stability risks to the broader economy and a range of financial system participants (households, businesses and banks). -
Disaggregating Household Sensitivity to Monetary Policy by Expenditure Category
Because the Bank of Canada has started withdrawing monetary stimulus, monitoring the transmission of these changes to monetary policy will be important. Subcomponents of consumption and housing will likely respond differently to a monetary policy tightening, both in terms of the aggregate effect and timing. -
Characterizing Canada’s Export Sector by Industry: A Supply-Side Perspective
This note examines supply-side trends in Canadian non-energy industries and their implications for export performance. Between 2002 and 2016, capital stocks and total labour input declined in many industries that export non-energy goods. These soft trends in the factors of production have likely contributed to the decline in non-energy exports in about half of the goods industries analyzed in this note. -
The Welfare Cost of Inflation Revisited: The Role of Financial Innovation and Household Heterogeneity
We document that, across households, the money consumption ratio increases with age and decreases with consumption, and that there has been a large increase in the money consumption ratio during the recent era of very low interest rates. We construct an overlapping generations (OLG) model of money holdings for transaction purposes subject to age (older households use more money), cohort (younger generations are exposed to better transaction technology), and time effects (nominal interest rates affect money holdings).