Average is Good Enough: Average-inflation Targeting and the ELB
The Great Recession and current pandemic have focused attention on the constraint on nominal interest rates from the effective lower bound.
Monetary policy
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Monetary Policy Implementation and Payment System Modernization
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. -
Monetary Policy Independence and the Strength of the Global Financial Cycle
We propose a new strength measure of the global financial cycle by estimating a regime-switching factor model on cross-border equity flows for 61 countries. We then assess how the strength of the global financial cycle affects monetary policy independence, which is defined as the response of central banks' policy interest rates to exogenous changes in inflation. -
Household indebtedness risks in the wake of COVID‑19
COVID-19 presents challenges for indebted households. We assess these by drawing parallels between pandemics and natural disasters. Taking into account the financial health of the household sector when the pandemic began, we run model simulations to illustrate how payment deferrals and the labour market recovery will affect mortgage defaults. -
Canadian Financial Stress and Macroeconomic Conditions
Severe disruptions in the financial markets, as observed during the 2008 global financial crisis or the COVID-19 pandemic, can impair the stability of the entire financial system and worsen macroeconomic downturns. -
How Do Mortgage Rate Resets Affect Consumer Spending and Debt Repayment? Evidence from Canadian Consumers
We study the causal effect of mortgage rate changes on consumer spending, debt repayment and defaults during an expansionary and a contractionary monetary policy episode in Canada. We find asymmetric responses of consumer durable spending, deleveraging and defaults. These findings help us to understand household sector response to interest rate changes. -
Identifying Aggregate Shocks with Micro-level Heterogeneity: Financial Shocks and Investment Fluctuation
This paper identifies aggregate financial shocks and quantifies their effects on business investment based on an estimated DSGE model with firm-level heterogeneity. On average, financial shocks contribute only 3% of the variation in U.S. public firms’ aggregate investment. -
Endogenous Time Variation in Vector Autoregressions
We introduce a new class of time-varying parameter vector autoregressions (TVP-VARs) where the identified structural innovations are allowed to influence — contemporaneously and with a lag — the dynamics of the intercept and autoregressive coefficients in these models. -
Learning, Equilibrium Trend, Cycle, and Spread in Bond Yields
This equilibrium model explains the trend in long-term yields and business-cycle movements in short-term yields and yield spreads. The less-frequent inverted yield curves (and less-frequent recessions) after the 1990s are due to recent secular stagnation and procyclical inflation expectations. -
Interest Rate Uncertainty as a Policy Tool
We study a novel policy tool—interest rate uncertainty—that can be used to discourage inefficient capital inflows and to adjust the composition of external account between shortterm securities and foreign direct investment (FDI).