E44 - Financial Markets and the Macroeconomy

• Financial Development Beyond the Formal Financial Market

  Staff Working Paper 2018-49 Lin Shao

  This paper studies the effects of financial development, taking into account both formal and informal financing. Using cross-country firm-level data, we document that informal financing is utilized more by rich countries than poor countries.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Financial markets, Firm dynamics, Productivity JEL Code(s): E, E4, E44, O, O1, O17, O4, O47

• How to Manage Macroeconomic and Financial Stability Risks: A New Framework

  Staff Analytical Note 2018-11 Alexander Ueberfeldt, Thibaut Duprey

  Monetary policy decisions need to consider all potential outcomes, not just the most likely path for the economy. This is especially true in the presence of elevated financial system vulnerabilities, which lead to increased downside risks for future growth.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Central bank research, Economic models, Financial stability, Financial system regulation and policies, Interest rates, Monetary Policy, Monetary policy framework JEL Code(s): E, E4, E44, E5, E52, E58, G, G0, G01

• Asymmetric Risks to the Economic Outlook Arising from Financial System Vulnerabilities

  Staff Analytical Note 2018-6 Thibaut Duprey

  When financial system vulnerabilities are elevated, they can give rise to asymmetric risks to the economic outlook. To illustrate this, I consider the economic outlook presented in the Bank of Canada’s October 2017 Monetary Policy Report in the context of two key financial system vulnerabilities: high levels of household indebtedness and housing market imbalances.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Financial stability, Financial system regulation and policies, Monetary and financial indicators, Recent economic and financial developments, Uncertainty and monetary policy JEL Code(s): C, C0, C01, C1, C11, C15, E, E1, E17, E3, E32, E37, E4, E44, E47, E5, E58, E6, E66, G, G0, G01, G1, G18

• The Macroeconomic Effects of Quantitative Easing in the Euro Area: Evidence from an Estimated DSGE Model

  Staff Working Paper 2018-11 Stefan Hohberger, Romanos Priftis, Lukas Vogel

  This paper estimates an open-economy dynamic stochastic general equilibrium model with Bayesian techniques to analyse the macroeconomic effects of the European Central Bank’s (ECB’s) quantitative easing (QE) programme. Using data on government debt stocks and yields across maturities, we identify the parameter governing portfolio adjustment in the private sector.

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

• Is the Excess Bond Premium a Leading Indicator of Canadian Economic Activity?

  Staff Analytical Note 2018-4 Maxime Leboeuf, Daniel Hyun

  This note investigates whether Canadian corporate spreads and the excess bond premium (EBP) lead Canadian economic activity. Indeed, we find that corporate spreads precede changes in real gross domestic product (GDP) in Canada over the subsequent year. The EBP accounts for most of this property. Further, an unanticipated increase in the Canadian EBP forecasts a deterioration of domestic macroeconomic conditions: a 10-basis-point increase results in a fall in both GDP and consumer price index (CPI) of 0.4 per cent and 0.1 per cent, respectively, over three years.

  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

• On the Tail Risk Premium in the Oil Market

  Staff Working Paper 2017-46 Reinhard Ellwanger

  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.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Econometric and statistical methods, Financial markets JEL Code(s): C, C5, C53, C58, D, D8, D84, E, E4, E44, G, G1, G12, G13, Q, Q4, Q43

• November 16, 2017 An Initial Assessment of Changes to the Bank of Canada’s Framework for Market Operations

  Bank of Canada Review - Autumn 2017 Kaetlynd McRae, Sean Durr, David Manzo

  The Bank of Canada made changes to several of the tools that make up its framework for operations and liquidity provision. These changes came about after a comprehensive re-view of the framework and are designed to help the Bank better achieve its objectives of reinforcing the target for the overnight rate and supporting the well-functioning of Cana-dian financial markets under normal market conditions.

  Content Type(s): Publications, Bank of Canada Review Article Topic(s): Financial markets, Financial stability, Monetary policy framework, Monetary policy implementation, Payment clearing and settlement systems, Transmission of monetary policy JEL Code(s): E, E4, E42, E44, E5, E52, E58, G, G0, G01, G1, G18

• Aggregate Fluctuations and the Role of Trade Credit

  Staff Working Paper 2017-37 Lin Shao

  In an economy where production takes place in multiple stages and is subject to financial frictions, how firms finance intermediate inputs matters for aggregate outcomes. This paper focuses on trade credit—the lending and borrowing of input goods between firms—and quantifies its aggregate impacts during the Great Recession.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Firm dynamics JEL Code(s): E, E3, E32, E4, E44, E5, E51

• The Rise of Non-Regulated Financial Intermediaries in the Housing Sector and its Macroeconomic Implications

  Staff Working Paper 2017-36 Hélène Desgagnés

  I examine the impact of non-regulated lenders in the mortgage market using a dynamic stochastic general equilibrium (DSGE) model. My model features two types of financial intermediaries that differ in three ways: (i) only regulated intermediaries face a capital requirement, (ii) non-regulated intermediaries finance themselves by selling securities and cannot accept deposits, and (iii) non-regulated intermediaries face a more elastic demand.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Business fluctuations and cycles, Economic models, Financial system regulation and policies, Housing JEL Code(s): E, E3, E32, E4, E44, E47, E6, E60, G, G2, G21, G23, G28

• Understanding Monetary Policy and its Effects: Evidence from Canadian Firms Using the Business Outlook Survey

  Staff Working Paper 2017-24 Matthieu Verstraete, Lena Suchanek

  This paper shows (i) that business sentiment, as captured by survey data, matters for monetary policy decisions in Canada, and (ii) how business perspectives are affected by monetary policy shocks. Measures of business sentiment (soft data) are shown to have systematic explanatory power for monetary policy decisions over and above typical Taylor rule variables.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Firm dynamics, Interest rates, Transmission of monetary policy JEL Code(s): D, D2, D22, E, E4, E44, E5, E52