G15 - International Financial Markets

• The BoC-BoE Sovereign Default Database Revisited: What’s New in 2018?

  Staff Working Paper 2018-30 David Beers, Jamshid Mavalwalla

  Until recently, there have been few efforts to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default. To help fill this gap, the Bank of Canada’s Credit Rating Assessment Group (CRAG) has developed a comprehensive database of sovereign defaults posted on the Bank of Canada’s website that now is updated in partnership with the Bank of England.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Debt Management, Development economics, Financial stability, International financial markets JEL Code(s): F, F3, F34, G, G1, G10, G14, G15

• Uncovered Return Parity: Equity Returns and Currency Returns

  Staff Working Paper 2018-22 Edouard Djeutem, Geoffrey R. Dunbar

  We propose an uncovered expected returns parity (URP) condition for the bilateral spot exchange rate. URP implies that unilateral exchange rate equations are misspecified and that equity returns also affect exchange rates. Fama regressions provide evidence that URP is statistically preferred to uncovered interest rate parity (UIP) for nominal bilateral exchange rates between the US dollar and six countries (Australia, Canada, Japan, Norway, Switzerland and the UK) at the monthly frequency.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Exchange rates, International financial markets JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G15

• A Barometer of Canadian Financial System Vulnerabilities

  Staff Analytical Note 2017-24 Thibaut Duprey, Tom Roberts

  This note presents a composite indicator of Canadian financial system vulnerabilities—the Vulnerabilities Barometer. It aims to complement the Bank of Canada’s vulnerabilities assessment by adding a quantitative and synthesized perspective to the more granular (distributional) analysis presented in the Financial System Review.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Econometric and statistical methods, Financial stability, Monetary and financial indicators JEL Code(s): C, C1, C14, C4, C40, D, D1, D14, E, E3, E32, E6, E66, F, F0, F01, G, G0, G01, G1, G15, G2, G21, H, H6, H63

• Optimal Estimation of Multi-Country Gaussian Dynamic Term Structure Models Using Linear Regressions

  Staff Working Paper 2017-33 Antonio Diez de los Rios

  This paper proposes a novel asymptotic least-squares estimator of multi-country Gaussian dynamic term structure models that is easy to compute and asymptotically efficient, even when the number of countries is relatively large—a situation in which other recently proposed approaches lose their tractability.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Econometric and statistical methods, Exchange rates, Interest rates JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G12, G15

• How to Predict Financial Stress? An Assessment of Markov Switching Models

  Staff Working Paper 2017-32 Benjamin Klaus, Thibaut Duprey

  This paper predicts phases of the financial cycle by using a continuous financial stress measure in a Markov switching framework. The debt service ratio and property market variables signal a transition to a high financial stress regime, while economic sentiment indicators provide signals for a transition to a tranquil state.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Business fluctuations and cycles, Central bank research, Econometric and statistical methods, Financial markets, Financial stability, Financial system regulation and policies, Monetary and financial indicators JEL Code(s): C, C5, C54, G, G0, G01, G1, G15

• Detecting Scapegoat Effects in the Relationship Between Exchange Rates and Macroeconomic Fundamentals

  Staff Working Paper 2017-22 Lorenzo Pozzi, Barbara Sadaba

  This paper presents a new testing method for the scapegoat model of exchange rates that aims to tighten the link between the theory on scapegoats and its empirical implementation. This new testing method consists of a number of steps.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Econometric and statistical methods, Exchange rates, International financial markets JEL Code(s): C, C3, C32, F, F3, F31, G, G1, G15

• What Explains Month-End Funding Pressure in Canada?

  Staff Discussion Paper 2017-9 Christopher S. Sutherland

  The Canadian overnight repo market persistently shows signs of latent funding pressure around month-end periods. Both the overnight repo rate and Bank of Canada liquidity provision tend to rise in these windows. This paper proposes three non-mutually exclusive hypotheses to explain this phenomenon.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Financial markets, Interest rates, Monetary policy framework, Monetary policy implementation, Transmission of monetary policy JEL Code(s): E, E4, E41, E43, E5, E52, E58, F, F3, F36, G, G1, G14, G15, G2, G21

• May 11, 2017 Wholesale Funding of the Big Six Canadian Banks

  Bank of Canada Review - Spring 2017 Matthieu Truno, Andriy Stolyarov, Danny Auger, Michel Assaf

  The Big Six Canadian banks are a dominant component of the Canadian financial system. How they finance their business activities is fundamental to how effective they are. Retail and commercial deposits along with wholesale funding represent the two major sources of funds for Canadian banks. What wholesale funding instruments do the Big Six banks use? How do they choose between different funding sources, funding strategies and why? How have banks changed their funding mix since the 2007–09 global financial crisis?

  Content Type(s): Publications, Bank of Canada Review Article Topic(s): Financial Institutions, Financial markets, Financial system regulation and policies, Market structure and pricing, Wholesale funding JEL Code(s): E, E4, E44, F, F3, G, G0, G01, G1, G10, G12, G15, G2, G20, G21, G28, O, O1, O16

• December 15, 2016 Toward More Resilient Markets: Over-the-Counter Derivatives Reform in Canada

  Financial System Review - December 2016 Michael Mueller, André Usche

  In Toward More Resilient Markets: Over-the-Counter Derivatives Reform in Canada, Michael Mueller and André Usche show that the implementation of derivatives market reforms in Canada is well under way and has lessened vulnerabilities. But accompanying changes to market structure have both positive and negative effects that require ongoing attention from authorities.

  Content Type(s): Publications, Financial System Review Article Topic(s): Financial markets, Financial stability, Financial system regulation and policies JEL Code(s): G, G0, G01, G1, G15, G2, G28

• Are Counterparty Arrangements in Reinsurance a Threat to Financial Stability?

  Staff Working Paper 2016-39 Matt Davison, Darrell Leadbetter, Bin Lu, Jane Voll

  Interconnectedness among insurers and reinsurers at a global level is not well understood and may pose a significant risk to the sector, with implications for the macroeconomy. Models of the complex interactions among reinsurers and with other participants in the financial system and the real economy are at a very early stage of development.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Financial Institutions, Financial services, Financial stability, Financial system regulation and policies JEL Code(s): C, C6, C63, G, G1, G10, G15, G18, G2, G22, G28