Yaz Terajima is the Senior Research Director in the Financial Stability Department (FSD). His primary research interests include macroeconomic implications of household and firm finances, banking and monetary policy. Specific topics include distributive effects of inflation across households, small business financial constraints and bankruptcy, and bank leverage dynamics. He holds a Ph.D. from the University of Pennsylvania.
Staff analytical notes
In light of the financial crisis and its aftermath, several economists have argued that inflation-targeting central banks should reconsider the level of their inflation targets. While the appropriate level for the inflation target remains an open question, it’s important to note that any transition to a new target would entail certain costs.
Staff discussion papers
The Covid-19 pandemic uncovered policy challenges related to the economic measures that were taken to support the economy. Two years later, we attempt to identify the broader impact of these measures and research that needs to follow.
Data show that income inequality in Canada increased substantially during the 1980s and first half of the 1990s but has been relatively stable over the past 25 years. This increase was felt mainly by low-income earners and younger people, while older people benefited from higher retirement income.
The theory that rich economic diversity of businesses and households both affects and is shaped by economy-wide fluctuations has strong implications for monetary policy. This review places these insights in a Canadian context.
The authors document leverage, capital and liquidity ratios of banks in Canada. These ratios are important indicators of different types of risk with respect to a bank’s balance‐sheet management. Particular attention is given to the observations by different types of banks, including small banks that historically received less attention.
The authors use microdata from the 1999 and 2005 Surveys of Financial Security to identify changes in household debt, and discuss their potential implications for monetary policy and financial stability. They document an increase in the debt-income ratio, which rose from 0.75 to 0.95, on average.
Staff working papers
Does the transmission of monetary policy change when interest rates are low or negative? We shed light on this question by analyzing the international bank lending channels of monetary policy using regulatory data on banks from four small open economies: Canada, Chile, the Czech Republic and Norway.
We document that, across households, the money consumption ratio increases with age and decreases with consumption, and that there has been a large increase in the money consumption ratio during the recent era of very low interest rates. We construct an overlapping generations (OLG) model of money holdings for transaction purposes subject to age (older households use more money), cohort (younger generations are exposed to better transaction technology), and time effects (nominal interest rates affect money holdings).
This paper analyzes the implications of the global financial cycle for conventional and unconventional monetary policies and macroprudential policy in small, open economies such as Canada. The paper starts by summarizing recent work on financial cycles and their growing correlation across borders.
This paper studies how banks simultaneously manage the two sides of their balance sheet and its implications for bank risk taking and real economic activity. First, we analyze how changes in funding affect the supply of bank loans.
Some evidence points to the procyclicality of leverage among financial institutions leading to aggregate volatility. This procyclicality occurs when financial institutions finance their assets with non-equity funding (i.e., debt financed asset expansions). Wholesale funding is an important source of market-based funding that allows some institutions to quickly adjust their leverage.
We study a model with repeated moral hazard where financial contracts are not fully indexed to inflation because nominal prices are observed with delay as in Jovanovic & Ueda (1997).
This paper studies the capital accumulation and welfare implications of reducing capital income taxation in a general equilibrium economy with uninsurable investment risks.
This paper examines the relationship between firm size and productivity. In contrast to previous studies, this paper offers evidence of the relationship not only from manufacturing firms, but from non-manufacturing firms as well.
Previous surveys of Canadian and U.S. business owners suggest that access to financing in Canada may be more problematic than in the United States. Using the 2003 Survey of Small Business Financing in the United States and the 2004 Survey on Financing of Small and Medium Enterprises in Canada, this paper examines whether this perception can be better quantified.
Since the work of Doepke and Schneider (2006a) and Meh and Terajima (2008), we know that inflation causes major redistribution of wealth – between households and the government, between nationals and foreigners, and between households within the same country.
Bank of Canada Review articles
August 16, 2012
This article examines four indicators of balance-sheet risks—leverage, capital, asset liquidity and funding—among different types of financial institutions in Canada over the past three decades. It also discusses relevant developments in the banking sector that could have contributed to the observed dynamics. The authors find that the various risk indicators decreased during the period for most of the non-Big Six financial institutions, but remained relatively unchanged for the Big Six banks. In addition, the balance-sheet risk indicators became more heterogeneous across financial institutions. The observed overall decline and increased heterogeneity follow certain regulatory changes, such as the introduction of the liquidity guidelines on funding in 1995 and the implementation of bank-specific leverage requirements in 2000. Given that these regulations required more balance-sheet risk management, they have likely contributed to the increased resilience of the banking sector.
April 7, 2009
Many central banks around the world have embraced inflation targeting as a monetary policy framework. Interest is growing, however, in price-level targeting as an alternative. The choice of frameworks has important consequences for financial contracts, most of which are not fully indexed to the price level. Changes in the price level therefore lead to changes in the real value of contracts.
April 5, 2009
One of the most important arguments in favour of price stability is that unexpected inflation generates changes in the distribution of income and wealth among different economic agents. These redistributions occur because many loans are specified in fixed dollar terms and unexpected inflation redistributes wealth from creditors to debtors by reducing the real value of nominal assets and liabilities.
September 15, 2008
The research findings highlighted in this article suggest that firm-size differences play a significant role in explaining the productivity gap between Canada and the United States. The authors review factors that lead to a positive relationship between productivity and size and then look at Canadian evidence of this relationship at the firm level. They quantify the extent to which the change in Canadian productivity as well as the Canada-U.S. productivity differences can be accounted for by the change in the importance of large firms and identify several factors that play a role in determining average firm size and aggregate productivity.
June 17, 2008
In this article, the authors build on the framework used in the Bank of Canada's Financial System Review to assess the evolution of household indebtedness and financial vulnerabilities in response to changing economic conditions. To achieve this, they first compare two microdata sets generated by Ipsos Reid's Canadian Financial Monitor and Statistics Canada's Survey of Financial Security. They find that the surveys are broadly comparable, despite methodological differences. This enables them to use the combined information content for the identification of the threshold value of the debt-service ratio (DSR). The article then presents an innovative framework that uses household-level microdata to simulate changes in the distribution of the DSR under various stress scenarios. The authors show how this framework can be used by analyzing the effects of two different scenarios on the distribution of the debt-service ratio and the impact on vulnerable households. This tool will enable researchers to refine their analyses of current risks to the financial health of Canadian households. The article concludes with comments on future directions for refining the Bank's analyses of household sector risk.
Financial System Review articles
- “The Welfare Cost of Inflation Revisited: The Role of Financial Innovation and Household Heterogeneity”
(with Shutao Cao, Cesaire Meh and José-Víctor Ríos-Rull), Journal of Monetary Economics, forthcoming.
- "The Global Financial Cycle, Monetary Policies, and Macroprudential Regulations in Small, Open Economies,"
(with Gregory Bauer, Gurnain Pasricha and Rodrigo Sekkel), Canadian Public Policy 44(2), pages 81-99 (2018).
- "Leverage, Balance-Sheet Size and Wholesale Funding,"
(with Evren Damar and Césaire Meh), Journal of Financial Intermediation 22(4), 639-662 (2013).
- "Inflation, Nominal Portfolios, and Wealth Redistribution in Canada," (with Césaire A. Meh), Canadian Journal of Economics 44(4), 1369-1402 (2011).
- "Aggregate and Welfare Effects of Redistribution of Wealth Under Inflation and Price-Level Targeting,"
(with Césaire A. Meh and José-Víctor Ríos-Rull), Journal of Monetary Economics 57(6), pages 637-652 (2010).
- "Uninsurable Investment Risks and Capital Income Taxation,"
(with Césaire A. Meh). Annals of Finance 5(3), pages 521-541 (2009).