E44 - Financial Markets and the Macroeconomy
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A Model of Housing Boom and Bust in a Small Open Economy
This paper considers a dynamic stochastic general equilibrium model for a small open economy and finds that an improvement in the terms of trade causes a housing boom-bust cycle if the duration of the improvement is uncertain. -
Unanticipated Defaults and Losses in Canada's Large-Value Payments System, Revisited
Recent work at the Bank of Canada studied the impact of default in Canada’s large-value payments system, and concluded that participants could readily manage their potential losses (McVanel 2005). In an extension of that work, the authors use a much larger set of daily payments data – with three times as many observations – to […] -
Gold Prices and Inflation
Using data for 14 countries over the 1994 to 2005 period, we assess the leading indicator properties of gold at horizons ranging from 6 to 24 months. -
Should Central Banks Adjust Their Target Horizons in Response to House-Price Bubbles?
The authors investigate the implications of house-price bubbles for the optimal inflation-target horizon using a dynamic general-equilibrium model with credit frictions, house-price bubbles, and small open-economy features. They find that, given the distribution of shocks and inflation persistence over the past 25 years, the optimal target horizon for Canada tends to be at the lower […] -
Corporate Balance Sheets in Developed Economies: Implications for Investment
In this paper, the authors examine the aggregate national balance-sheets of non-financial corporations in Australia and the G7 countries with a view to assessing both their financial structure and their financial position. More importantly, the authors investigate whether the financial position of non-financial corporations (i.e., debt-to-equity ratio) is material to the economy's investment prospects and whether the importance of this channel differs depending on the structure of corporate financing i.e., bank-based or market-oriented financing structures. -
Firms Dynamics, Bankruptcy Laws and Total Factor Productivity
This paper analyzes endogenous fluctuations in total factor productivity (TFP) in a dynamic general equilibrium model with heterogeneous agents, and illustrates the interaction of credit market frictions, asset prices, the entry and exit of firms, and fluctuations in TFP in response to firm-level productivity and aggregate credit-market shocks. I also analyze the effect of bankruptcy and foreclosure laws on fluctuations in TFP through their effect on credit market frictions. -
Uncollateralized Overnight Loans Settled in LVTS
Loan-level data on the uncollateralized overnight loan market is generated using payment data from Canada's Large Value Transfer System (LVTS) and a modified version of the methodology proposed in Furfine (1999). There were on average just under 100 loans extended in this market each day from March 2004 to March 2006 for a total daily value of about $5 billion. -
Monetary Policy in an Estimated DSGE Model with a Financial Accelerator
The authors estimate a sticky-price dynamic stochastic general-equilibrium model with a financial accelerator, à la Bernanke, Gertler, and Gilchrist (1999), to assess the importance of financial frictions in the amplification and propagation of the effects of transitory shocks. -
The Canadian Macroeconomy and the Yield Curve: An Equilibrium-Based Approach
The authors develop and estimate an equilibrium-based model of the Canadian term structure of interest rates.