Liquidation Mechanisms and Price Impacts in DeFi
This paper theoretically and empirically examines the price impacts of liquidations in DeFi and how different liquidation mechanisms affect the price impacts.
Financial markets and funds management
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Estimating Discrete Choice Demand Models with Sparse Market-Product Shocks
We propose a novel approach to estimating consumer demand for differentiated products. We eliminate the need for instrumental variables by assuming demand shocks are sparse. Our empirical applications reveal strong evidence of sparsity in real-world datasets. -
Risk-Free Uncollateralized Lending in Decentralized Markets: An Introduction to Flash Loans
A flash loan is a special type of uncollateralized loan with zero default risk. I document the use for flash loans across major blockchains that are Ethereum-Virtual-Machine-compatible. Flash loans expand access to liquidity, and highly sophisticated actors use them for many practical applications. -
Will Asset Managers Dash for Cash? Implications for Central Banks
We consider ways central banks could adapt in the event of an increased risk of a dash for cash from asset managers. We explore ideas such as new facilities that ease asset managers’ ability to convert existing assets to cash or new assets with liquidity that central banks would guarantee. -
Is anyone surprised? The high-frequency impact of US and domestic macroeconomic data announcements on Canadian asset prices
Using almost two decades of detailed high-frequency data, we show how Canadian interest rates, the CAD/USD spot exchange rate, and stock market returns react to both US and domestic macro announcements. We find that Canadian macroeconomic announcements invoke greater responses in short-term yields, whereas US macroeconomic announcements play an increasingly important role in the yield movements of longer-term assets. -
Estimating the inflation risk premium
Is there a risk of de-anchoring of inflation expectations in the near term? We estimate the inflation risk premium using traditional asset pricing models to answer this question. The risk of de-anchoring is elevated compared with the period before the COVID-19 pandemic and is higher in the United States than in Canada. -
Crisis facilities as a source of public information
During the COVID-19 financial market crisis, central banks introduced programs to support liquidity in important core funding markets. As well as acting as a backstop to market prices, these programs produce useful trading data on prevailing market conditions. When summary information from this data is shared publicly, it can help market participants understand current conditions and aid the recovery of market functioning. -
The new repo tri-party Canadian Collateral Management Service: Benefits to the financial system and to the Bank of Canada
The Canadian Collateral Management Service (CCMS) is a new tri-party collateral management service offered by the TMX Group and Clearstream. CCMS will enhance Canada’s financial infrastructure for securities financing transactions, including for the repurchase, or repo, market that is a core funding market in Canada. We explain the importance of the repo market and describe the benefits of the CCMS for market participants and for the Bank of Canada. -
Markups, Pass-Through, and Firm Heterogeneity with Sequentially Mixed Search
Market power and pass-through of cost and demand shocks are studied in a market with free entry of heterogeneous firms and consumer mixed search. Equilibrium prices and markups are driven by variation in the elasticity of demand across firms. Improved conditions for buyers can either raise or lower market power. -
Exploring the drivers of the real term premium in Canada
Changes in the term premium can reflect uncertainty about inflation, growth and monetary policy. Understanding the key factors that influence the term premium is important when central banks make decisions about monetary policy. In this paper, we derive the real term premium from the nominal term premium in Canada.