E51 - Money Supply; Credit; Money Multipliers
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Crypto ‘Money’: Perspective of a Couple of Canadian Central Bankers
The market for cryptoassets has exploded in size in the 10 years since bitcoin was launched. The technology underlying cryptoassets, blockchain, has also been held up as a technology that promises to transform entire industries. -
Should the Central Bank Issue E-money?
Should a central bank take over the provision of e-money, a circulable electronic liability? We discuss how e-money technology changes the tradeoff between public and private provision, and the tradeoff between e-money and a central bank's existing liabilities like bank notes and reserves. -
Price Selection
We propose a simple, model-free way to measure price selection and its impact on inflation. Price selection exists when prices that change in response to aggregate shocks are not representative of the overall population of prices. Due to selection, increases (decreases) in inflation can be amplified because adjusting prices tend to originate from levels far below (above) the average. -
A Policy Framework for E-Money: A Report on Bank of Canada Research
We present a policy framework for electronic money and payments. The framework poses a set of positive questions related to the areas of responsibility of central banks: payments systems, monetary policy and financial stability. The questions are posed to four broad forms of e-money: privately or publicly issued, and with centralized or decentralized verification of transactions. This framework is intended to help evaluate the trade-offs that central banks face in the decision to issue new forms of e-money. -
Credit Crunches from Occasionally Binding Bank Borrowing Constraints
We present a model in which banks and other financial intermediaries face both occasionally binding borrowing constraints and costs of equity issuance. Near the steady state, these intermediaries can raise equity finance at no cost through retained earnings. -
Aggregate Fluctuations and the Role of Trade Credit
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. -
Terms-of-Trade and House Price Fluctuations: A Cross-Country Study
Terms-of-trade shocks are known to be key drivers of business cycles in open economies. This paper argues that terms-of-trade shocks were also important for house price fluctuations in a panel of developed countries over the 1994–2015 period. -
On the Value of Virtual Currencies
This paper develops an economic framework to analyze the exchange rate of virtual currency. Three components are important: first, the current use of virtual currency to make payments; second, the decision of forward-looking investors to buy virtual currency (thereby effectively regulating its supply); and third, the elements that jointly drive future consumer adoption and merchant acceptance of virtual currency. -
On the Nexus of Monetary Policy and Financial Stability: Effectiveness of Macroprudential Tools in Building Resilience and Mitigating Financial Imbalances
This paper reviews the Canadian and international evidence of the effectiveness of macroprudential policy measures in building resilience and mitigating financial imbalances. The analysis concludes that these measures have broadly achieved their goal of increasing the overall resilience of the financial system to the buildup of imbalances and increasing the financial system’s ability to withstand adverse shocks. -
December 15, 2015
Indebted Households and Potential Vulnerabilities for the Canadian Financial System: A Microdata Analysis
Over the past decade, an increasing proportion of households in Canada have become highly indebted relative to their income. These highly indebted households now hold one-fifth of total Canadian household debt.Simulations suggest that this greater degree of household indebtedness could exacerbate the impact of shocks to income and interest rates relative to the pre-crisis period. However, an assessment of the vulnerability of the Canadian financial system should, among other factors, account for the ability of Canadian financial institutions to withstand losses from the household sector.