G - Financial Economics
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Capital Requirement and Financial Frictions in Banking: Macroeconomic Implications
The author develops a dynamic stochastic general-equilibrium model with an active banking sector, a financial accelerator, and financial frictions in the interbank and bank capital markets. -
Losses from Simulated Defaults in Canada's Large Value Transfer System
The Large Value Transfer System (LVTS) loss-sharing mechanism was designed to ensure that, in the event of a one-participant default, the collateral pledged by direct members of the system would be sufficient to cover the largest possible net debit position of a defaulting participant. However, the situation may not hold if the indirect effects of the defaults are taken into consideration, or if two participants default during the same payment cycle. -
Banks, Credit Market Frictions, and Business Cycles
The author proposes a micro-founded framework that incorporates an active banking sector into a dynamic stochastic general-equilibrium model with a financial accelerator. -
Liquidity, Risk, and Return: Specifying an Objective Function for the Management of Foreign Reserves
An objective function is a key component of a strategic portfolio management model used to determine the optimal allocations of assets and, possibly, their associated liabilities over some investment horizon. -
Liquidity Transformation and Bank Capital Requirements
This paper presents a dynamic general equilibrium model where asymmetric information about asset quality leads to asset illiquidity. Banking arises endogenously in this environment as banks can pool illiquid assets to average out their idiosyncratic qualities and issue liquid liabilities backed by pooled assets whose total quality is public information. -
Identifying Asymmetric Comovements of International Stock Market Returns
Based on a new approach for measuring the comovements between stock market returns, we provide a nonparametric test for asymmetric comovements in the sense that stock market downturns will lead to stronger comovements than market upturns. -
Asset-Liability Management: An Overview
Relevant literature on asset-liability management (ALM) is reviewed and different ALM approaches are discussed that may be of interest to the Bank of Canada for the purpose of modelling the Exchange Fund Account (EFA). -
An Assessment of the Bank of Canada's Term PRA Facility
This paper empirically assesses the effectiveness of the Bank of Canada's term Purchase and Resale Agreement (PRA) facility in reducing short-term bank funding pressures, as measured by the CDOR-OIS spread. -
International Capital Flows and Bond Risk Premia
This paper studies the impact of international capital flows on asset prices through risk premia. We investigate whether foreign purchases of U.S. Treasury securities significantly contributed to the decline in excess returns on long-term bonds between 1995 and 2008.