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On the Wedge Between the PPI and CPI Inflation Indicators

Staff Working Paper 2022-5 Shang-Jin Wei, Yinxi Xie
We find that the CPI and PPI inflation indexes co-moved strongly throughout the late 20th century, but their correlation has fallen substantially since the early 2000s. We offer a structural explanation for this divergence based on the growth of global supply chains since 2000. This finding offers a unique perspective for the future design of optimal monetary policy.

Assessing Climate-Related Financial Risk: Guide to Implementation of Methods

A pilot project on climate transition scenarios by the Bank of Canada and the Office of the Superintendent of Financial Institutions assessed climate-related credit and market risks. This report describes the project’s methodologies and provides guidance on implementing them.

Transition Scenarios for Analyzing Climate-Related Financial Risk

Climate transition scenarios clarify climate-related risks to our economy and financial system. This paper summarizes key results of Canada-relevant scenarios developed in a pilot project on climate risk by the Bank of Canada and the Office of the Superintendent of Financial Institutions.

Firm Inattention and the Efficacy of Monetary Policy: A Text-Based Approach

Staff Working Paper 2022-3 Wenting Song, Samuel Stern
How much attention do firms pay to macroeconomic news? Through a novel text-based measure, two facts emerge. First, attention is polarized. Most firms either never or always pay attention to economic conditions. Second, it is countercyclical. During recessions, more firms pay attention, and firms pay greater attention to macroeconomic news.

Quantifying the Economic Benefits of Payments Modernization: the Case of the Large-Value Payment System

Staff Working Paper 2021-64 Neville Arjani, Fuchun Li, Zhentong Lu
Canada is undertaking a major initiative to modernize its payments ecosystem. The modernized ecosystem is expected to bring significant benefits to Canadian financial markets and the overall economy. We develop an empirical framework to quantify the economic benefits of modernizing the payment system in Canada.

The Countercyclical Capital Buffer and International Bank Lending: Evidence from Canada

Staff Working Paper 2021-61 David Xiao Chen, Christian Friedrich
We examine the impact of the CCyB on foreign lending activities of Canadian banks. We show that the announcement of a tightening in another country’s CCyB leads to a decrease in the growth rate of cross-border lending between Canadian banks and borrowers in that other country.

Discount Rates, Debt Maturity, and the Fiscal Theory

Staff Working Paper 2021-58 Alexandre Corhay, Thilo Kind, Howard Kung, Gonzalo Morales
Do bond risk premiums influence the effects of debt maturity operations? Using a model with realistic bond risk premiums, we show that maturity operations have sizable effects on expected inflation and output when the central bank passively responds to inflation and the fiscal authority weakly responds to the debt level.
Content Type(s): Staff research, Staff working papers Topic(s): Fiscal policy, Interest rates, Monetary policy JEL Code(s): E, E4, E43, E44, E6, E63, G, G1, G12

What to Target? Insights from a Lab Experiment

Staff Working Paper 2021-53 Isabelle Salle
In a laboratory experiment, we ask participants to predict inflation using three different policy regimes: inflation targeting—with and without greater communication of the target—average inflation targeting and price level targeting. We use participants’ predictions to compare the level and stability of inflation under each regime.

What Can Stockouts Tell Us About Inflation? Evidence from Online Micro Data

Staff Working Paper 2021-52 Alberto Cavallo, Oleksiy Kryvtsov
Did supply disruptions and cost pressures play a role in rising inflation in 2020 during the COVID-19 pandemic? Using data collected from websites of large retailers in multiple sectors and countries, we show that shortages may indicate transitory inflationary pressures.

Systemic Risk and Portfolio Diversification: Evidence from the Futures Market

Staff Working Paper 2021-50 Radoslav Raykov
This paper explores how the Canadian futures market contributed to banks’ systemic risk during the 2008 financial crisis. It finds that core banks as a whole traded against the periphery, in this way increasing their risk of simultaneous losses.
Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets JEL Code(s): G, G1, G10, G2, G20
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