E44 - Financial Markets and the Macroeconomy

• What Does Structural Analysis of the External Finance Premium Say About Financial Frictions?

  Staff Working Paper 2019-38 Jelena Zivanovic

  I use a structural vector autoregression (SVAR) with sign restrictions to provide conditional evidence on the behavior of the US external finance premium (EFP). The results indicate that the excess bond premium, a proxy for the EFP, reacts countercyclically to supply and monetary policy shocks and procyclically to demand shocks.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Economic models, Financial markets, Recent economic and financial developments JEL Code(s): E, E3, E32, E4, E44

• Financial Frictions, Durable Goods and Monetary Policy

  Staff Working Paper 2019-31 Ugochi Emenogu, Leo Michelis

  Financial frictions affect how much consumers spend on durable and non-durable goods. Borrowers can face both loan-to-value (LTV) constraints and payment-to-income (PTI) constraints.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Financial system regulation and policies, Monetary Policy JEL Code(s): E, E4, E44, E5, E52

• Bridging Canadian Business Lending and Market-Based Risk Measures

  Staff Analytical Note 2019-26 Guillaume Ouellet Leblanc, Maxime Leboeuf

  Lending to business is central to economic growth because it supports investment by firms. Knowing how market participants view risk in the financial system can give the Bank of Canada information about future growth in business loans. In this note, we look at three market-based risk measures and find that sudden increases in the perception of risk in the Canadian banking system are associated with a weaker outlook for business loans and real gross domestic product.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Business fluctuations and cycles, Financial markets JEL Code(s): E, E3, E32, E4, E44, G, G1, G12

• Lending Standards, Productivity and Credit Crunches

  Staff Working Paper 2019-25 Jonathan Swarbrick

  We propose a macroeconomic model in which adverse selection in investment drives the amplification of macroeconomic fluctuations, in line with prominent roles played by the credit crunch and collapse of the asset-backed security market in the financial crisis.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Financial markets, Financial stability, Interest rates, Productivity JEL Code(s): E, E2, E22, E3, E32, E4, E44, G, G0, G01

• The Effects of Inflation Targeting for Financial Development

  Staff Analytical Note 2019-21 Geoffrey R. Dunbar, Amy (Qijia) Li

  The adoption of inflation targeting (IT) by central banks leads to an increase of 10 to 20 percent in measures of financial development, with a lag. We also find evidence that the financial sector benefits of IT adoption were higher for early-adopting central banks.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Financial Institutions, Inflation targets, Transmission of monetary policy JEL Code(s): E, E4, E44, E5, E58

• Assessing the Resilience of the Canadian Banking System

  Staff Analytical Note 2019-16 Charles Gaa, Xuezhi Liu, Cameron MacDonald, Xiangjin Shen

  The stability of the Canadian financial system, as well as its ability to support the Canadian economy, depends on the ability of financial institutions to absorb and manage major shocks. This is especially true for large banks, which perform services essential to the Canadian economy.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Financial Institutions, Financial stability JEL Code(s): C, C6, C63, E, E2, E27, E3, E37, E4, E44, G, G0, G01, G2, G21

• Macroprudential Policy with Capital Buffers

  Staff Working Paper 2019-8 Josef Schroth

  The countercyclical capital buffer is part of Basel III, the set of regulatory measures developed in response to the financial crisis of 2007–09. This study focuses on how time-varying capital buffers can address inefficiencies in economies with endogenous financial crises.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Credit risk management, Financial stability, Financial system regulation and policies, Lender of last resort JEL Code(s): E, E1, E13, E3, E32, E4, E44

• The Distributional Effects of Conventional Monetary Policy and Quantitative Easing: Evidence from an Estimated DSGE Model

  Staff Working Paper 2019-6 Stefan Hohberger, Romanos Priftis, Lukas Vogel

  This paper compares the distributional effects of conventional monetary policy and quantitative easing (QE) within an estimated open-economy DSGE model of the euro area.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Economic models, Interest rates, Monetary Policy, Transmission of monetary policy JEL Code(s): E, E4, E44, E5, E52, F, F4, F41

• Corporate Debt Composition and Business Cycles

  Staff Working Paper 2019-5 Jelena Zivanovic

  Based on empirical evidence, I propose a dynamic stochastic general equilibrium model with two financial sectors to analyze the role of corporate debt composition (bank versus bond financing) in the transmission of economic shocks.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Business fluctuations and cycles, Financial Institutions, Financial markets, Recent economic and financial developments JEL Code(s): E, E3, E32, E4, E44

• Frictional Capital Reallocation I: Ex Ante Heterogeneity

  Staff Working Paper 2019-4 Randall Wright, Sylvia Xiaolin Xiao, Yu Zhu

  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.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Monetary Policy JEL Code(s): E, E2, E22, E4, E44