We find that prices and costs for consumer-oriented firms moved roughly one-for-one during the COVID-19 pandemic. This means firms fully passed rising costs through to the prices they charged. However, our results are suggestive, given data limitations and the uncertainty associated with estimating markups.
Staff analytical notes
We analyze the financial statements and stock prices of publicly traded firms incorporated in Canada that report greenhouse gas emissions. We find that these firms primarily use equity financing. We also find that equity investors increasingly account for firms’ emissions when making investment decisions but the impact appears small. This suggests that assets exposed to climate change remain at risk of a sudden repricing.
Despite COVID-19 challenges, bold policy measures in Canada have helped businesses manage cash flow pressures and kept insolvency filings low. But the impact of the pandemic has been uneven, and the financial health of some firms may further deteriorate over the next year.
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.
We measure the prevalence of zombie firms in Canada and assess how they could potentially affect the financial system.
The ratio of non-financial corporate debt to gross domestic product in Canada has increased noticeably in recent years and is currently at an all-time high. In light of this development, we use a unique firm-level dataset to construct vulnerability indicators for the non-financial corporate sector in Canada.
Aggregate non-financial corporate debt-to-GDP has been growing rapidly in recent years and is at an all-time high. This growth began in 2011 and accelerated as the oil price shock affected the Canadian economy.
Over the past several years, the Bank for International Settlements has noted that Canada’s credit-to-GDP gap has widened and is above thresholds indicating future banking stress.
Staff working papers
This paper combines loan-level administrative data with household-level survey data to analyze the impact of recent macroprudential policy changes in Canada using a microsimulation model of mortgage demand of first-time homebuyers.
Financial System Review articles
- "The Impact of Macroprudential Housing Finance Tools in Canada"
(with Jason Allen, Brian Peterson, and Tom Roberts), Journal of Financial Intermediation (forthcoming).