Jonathan Witmer is the Director of the Monetary Policy Analysis and Research Team in the Financial Markets Department. His primary research interests include the role of mutual funds in financial markets and the transmission of monetary policy. Jonathan has also worked on various policy issues such as the zero lower bound, monetary policy implementation, and OTC derivatives. He obtained his PhD in Finance from Queen’s University and an MBA from the Richard Ivey School of Business.
Staff analytical notes
Unexpected changes in interest rates lead small firms to materially change their investment rate. Large firms, in contrast, show a smaller response. This suggests both that financial conditions are an important channel for transmitting monetary policy and that firm characteristics can help us better understand fluctuations in business investment.
The Bank of Canada launched the Bankers’ Acceptance Purchase Facility (BAPF) to ensure that the bankers’ acceptance (BA) market could continue to function well during the financial crisis induced by the COVID‑19 pandemic. We review the impact that the announcement of this facility had on BA yields in the secondary market. We find that BA yield spreads declined by 15 basis points on the day of the announcement and by up to 70 basis points over a longer period. Using an econometric framework, we quantify the effect of the announcement and confirm early assertions presented in the Bank’s 2020 Financial System Review.
Business investment has been lower than expected in Canada and abroad since the financial crisis of 2007–09. This corporate investment gap is mirrored in firms’ other financing decisions, as they have increased cash holdings and dividend payments and decreased issuance of debt and equity.
In 2009, the Bank of Canada set its effective lower bound (ELB) at 25 basis points (bps). Given the recent experience of Sweden, Denmark, Switzerland and the euro area with negative interest rates, we examine the economics of negative interest rates and suggest that cash storage costs are the source of a negative lower bound on interest rates.
Staff discussion papers
This paper summarizes the literature on the performance of various extended monetary policy tools when conventional policy rates are constrained by the effective lower bound. We highlight issues that may arise when these tools are used by central banks of small open economies.
The literature on market timing of long-term debt issuance yields mixed evidence that managers can successfully time their debt-maturity issuance. The early results that are indicative of debt-maturity timing are not robust to accounting for structural breaks or to other measures of debt maturity from firm-level data that account for call and put provisions in […]
Staff working papers
Canada plans to adopt a retail payment system to allow Canadians to pay in real time (or near real time) 24 hours a day, 7 days a week. However, the traditional model for setting the overnight interest rate does not operate 24/7.
Recent research suggests that quantitative easing (QE) may affect a broad range of asset prices through a portfolio balance channel. Using novel security-level holding data of individual US mutual funds, we establish evidence that portfolio rebalancing occurred both within and across funds.
Monetary policy implementation could, in theory, be constrained by deeply negative rates since overnight market participants may have an incentive to invest in cash rather than lend to other participants.
Following the financial crisis, there has been increased regulatory focus on the management of liquidity in mutual funds and, specifically, whether funds hold enough liquidity to guard against the potential for investor runs.
An international initiative to increase the use of central clearing for OTC derivatives emerged as one of the reactions to the 2008 financial crisis. The move to central clearing is a fundamental change in the structure of the market.
Recent reform proposals call for an elimination of the constant net asset value (NAV) or “buck” in money market mutual funds to reduce the occurrence of runs. Outside the United States, there are several countries that have money market mutual funds with and without constant NAVs.
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.
Do short sales restrictions have an impact on security prices? We address this question in the context of a natural experiment surrounding the short sale ban of 2008 using a comprehensive sample of Canadian stocks cross-listed in the U.S.
This paper calculates an implied cost of equity for 19 developed countries from 1991 to 2006. During this period, there has been a decline in the cost of equity of about 10-15 bps per year, which can be partially attributed to declining government yields and declining inflation.
This paper examines Canadian and other foreign firms that have been involuntarily delisted from major U.S. exchanges. I find that, for most countries, less than 10% of firms get delisted from a U.S. exchange during my sample period.
Bank of Canada Review articles
May 16, 2016
Recently, the Bank of Canada has estimated the effective lower bound (ELB) on its policy interest rate to be about -50 basis points. This article outlines the analysis that underpins that estimate by quantifying the costs of storing and using cash in Canada. It also explores how some international markets have adapted to negative interest rates, issues surrounding their implementation, as well as their transmission to other interest rates in the economy. Finally, it discusses theoretical ideas on how the ELB could be reduced further.
November 18, 2010
Trends in debt issuance have changed significantly over the past decade, both prior to the financial crisis and subsequently.
Financial System Review articles
June 11, 2015
The authors examine the liquidity and leverage characteristics of Canadian long-term, open-end mutual funds in terms of their potential systemic effects on the Canadian mutual fund sector and on the Canadian financial system more broadly. In their overall assessment of this sector, they consider the regulation, market size and ownership structure of mutual funds in Canada and provide observations about the industry globally.
- “Monetary Policy Implementation in a Negative Rate Environment,"
(with Michael Boutros), Journal of Money, Credit and Banking, 2019, forthcoming.
- “Strategic complementarities and money market fund liquidity management,"
Journal of Financial Intermediation, 2019, Volume 38, Pages 58-68.
- “Does the buck stop here? A comparison of withdrawals from money market mutual funds with floating and constant share prices”,
Journal of Banking & Finance, May 2016, Volume 66, Pages 126-142.
- “Liquidity and central clearing: evidence from the credit default swap market,”
(with Joshua Slive and Elizabeth Woodman), 2013, Journal of Financial Market Infrastructures, Volume 112, Issue 1, Pages 91-115, April 2014.
- “Distribution of Ownership, Short Sale Constraints, and Market Efficiency: Evidence from Cross‐Listed Stocks,"
(with Louis Gagnon), Financial Management, 2014, Volume 43(3), Pages 631-670.
- “An Assessment of the Bank of Canada’s Term PRA Facility.”
(with E. Enenajor and A. Sebastian), The North American Journal of Economics and Finance 23 (1): 123–43, 2012.