E - Macroeconomics and Monetary Economics

• Financial Development and the Volatility of Income

  Staff Working Paper 2013-4 Tiago Pinheiro, Francisco Rivadeneyra, Marc Teignier

  This paper presents a general equilibrium model with endogenous collateral constraints to study the relationship between financial development and business cycle fluctuations in a cross-section of economies with different sizes of their financial sector.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Credit and credit aggregates, Financial stability JEL Code(s): E, E3, E32, E6, E60

• Real-financial Linkages through Loan Default and Bank Capital

  Staff Working Paper 2013-3 Tamon Takamura

  Many studies in macroeconomics argue that financial frictions do not amplify the impacts of real shocks. This finding is based on models without endogenous default on loans and bank capital. Using a model featuring endogenous interactions between firm default and bank capital, this paper revisits the propagation mechanisms of real and financial shocks.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial stability, Financial system regulation and policies, Interest rates JEL Code(s): E, E3, E32, E4, E44, E6, E69

• House Prices, Consumption and the Role of Non-Mortgage Debt

  Staff Working Paper 2013-2 Katya Kartashova, Ben Tomlin

  This paper examines the relationship between house prices and consumption, through the use of debt. Using unique Canadian household-level data that reports the uses of debt, we begin by looking at the relationship between house prices and debt.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Credit and credit aggregates, Domestic demand and components JEL Code(s): D, D1, D10, D14, D3, D31, E, E2, E21

• The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications

  Staff Working Paper 2013-1 Olivier Coibion, Yuriy Gorodnichenko, Gee Hee Hong

  We study the cyclical properties of sales, regular price changes and average prices paid by consumers (“effective” prices) using data on prices and quantities sold for numerous retailers across many U.S. metropolitan areas.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Inflation and prices, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E3, E4, E5

• Extracting Information from the Business Outlook Survey Using Statistical Approaches

  Staff Discussion Paper 2012-8 Lise Pichette

  Since the autumn of 1997, the regional offices of the Bank of Canada have conducted quarterly consultations with businesses across Canada. These consultations, summarized in the Business Outlook Survey (BOS), are structured around a survey questionnaire that covers topics of importance to the Bank, notably business activity, pressures on production capacity, prices and inflation, and credit conditions.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Business fluctuations and cycles, Regional economic developments JEL Code(s): C, C4, C43, C8, C82, E, E3, E37

• On the Welfare Effects of Credit Arrangements

  Staff Working Paper 2012-43 Jonathan Chiu, Mei Dong, Enchuan Shao

  This paper studies the welfare effects of different credit arrangements and how these effects depend on the trading mechanism and inflation. In a competitive market, a deviation from the Friedman rule is always sub-optimal. Moreover, credit arrangements can be welfare-reducing, because increased consumption by credit users will drive up the price level so that money users have to reduce consumption when facing a binding liquidity restraint.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Credit and credit aggregates, Payment clearing and settlement systems JEL Code(s): E, E4, E40, E5, E50

• Financial Crisis Resolution

  Staff Working Paper 2012-42 Josef Schroth

  This paper studies a dynamic version of the Holmstrom-Tirole model of intermediated finance. I show that competitive equilibria are not constrained efficient when the economy experiences a financial crisis. A pecuniary externality entails that banks’ desire to accumulate capital over time aggravates the scarcity of informed capital during the financial crisis.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets, Financial system regulation and policies JEL Code(s): D, D5, D53, E, E6, E60, G, G0, G01, G1, G10, G18

• Estimating the Policy Rule from Money Market Rates when Target Rate Changes Are Lumpy

  Staff Working Paper 2012-41 Jean-Sébastien Fontaine

  Most central banks effect changes to their target or policy rate in discrete increments (e.g., multiples of 0.25%) following public announcements on scheduled dates. Still, for most applications, researchers rely on the assumption that the policy rate changes linearly with economic conditions and they do not distinguish between dates with and without scheduled announcements.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, E44, E47, G, G1, G12, G13

• The Effects of Oil Price Uncertainty on the Macroeconomy

  Staff Working Paper 2012-40 Soojin Jo

  This paper investigates the effect of oil price uncertainty on real economic activity using a quarterly VAR with stochastic volatility in mean. Stochastic volatility allows oil price uncertainty to vary separately from changes in the level of oil prices, and thus the impact of oil price uncertainty can be examined in a more flexible yet tractable way.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C3, C32, E, E3, E32, Q, Q4, Q43
• November 15, 2012

  Monetary Policy and the Risk-Taking Channel: Insights from the Lending Behaviour of Banks

  Bank of Canada Review - Autumn 2012 Teodora Paligorova, Jesus Sierra

  The financial crisis of 2007-09 and the subsequent extended period of historically low real interest rates have revived the question of whether economic agents are willing to take on more risk when interest rates remain low for a prolonged time period. This increased appetite for risk, which causes economic agents to search for investment assets and strategies that generate higher investment returns, has been called the risk-taking channel of monetary policy. Recent academic research on banks suggests that lending policies in times of low interest rates can be consistent with the existence of a risk-taking channel of monetary policy in Europe, South America, the United States and Canada. Specifically, studies find that the terms of loans to risky borrowers become less stringent in periods of low interest rates. This risk-taking channel may amplify the effects of traditional transmission mechanisms, resulting in the creation of excessive credit.

  Content Type(s): Publications, Bank of Canada Review articles Research Topic(s): Financial institutions, Monetary policy framework JEL Code(s): E, E5, E58, G, G2, G21