Extracting Information from the Business Outlook Survey Using Statistical Approaches Staff Discussion Paper 2012-8 Lise Pichette Since the autumn of 1997, the regional offices of the Bank of Canada have conducted quarterly consultations with businesses across Canada. These consultations, summarized in the Business Outlook Survey (BOS), are structured around a survey questionnaire that covers topics of importance to the Bank, notably business activity, pressures on production capacity, prices and inflation, and credit conditions. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Business fluctuations and cycles, Regional economic developments JEL Code(s): C, C4, C43, C8, C82, E, E3, E37
On the Welfare Effects of Credit Arrangements Staff Working Paper 2012-43 Jonathan Chiu, Mei Dong, Enchuan Shao This paper studies the welfare effects of different credit arrangements and how these effects depend on the trading mechanism and inflation. In a competitive market, a deviation from the Friedman rule is always sub-optimal. Moreover, credit arrangements can be welfare-reducing, because increased consumption by credit users will drive up the price level so that money users have to reduce consumption when facing a binding liquidity restraint. Content Type(s): Staff research, Staff working papers Research Topic(s): Credit and credit aggregates, Payment clearing and settlement systems JEL Code(s): E, E4, E40, E5, E50
Financial Crisis Resolution Staff Working Paper 2012-42 Josef Schroth This paper studies a dynamic version of the Holmstrom-Tirole model of intermediated finance. I show that competitive equilibria are not constrained efficient when the economy experiences a financial crisis. A pecuniary externality entails that banks’ desire to accumulate capital over time aggravates the scarcity of informed capital during the financial crisis. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets, Financial system regulation and policies JEL Code(s): D, D5, D53, E, E6, E60, G, G0, G01, G1, G10, G18
Estimating the Policy Rule from Money Market Rates when Target Rate Changes Are Lumpy Staff Working Paper 2012-41 Jean-Sébastien Fontaine Most central banks effect changes to their target or policy rate in discrete increments (e.g., multiples of 0.25%) following public announcements on scheduled dates. Still, for most applications, researchers rely on the assumption that the policy rate changes linearly with economic conditions and they do not distinguish between dates with and without scheduled announcements. Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, E44, E47, G, G1, G12, G13
The Effects of Oil Price Uncertainty on the Macroeconomy Staff Working Paper 2012-40 Soojin Jo This paper investigates the effect of oil price uncertainty on real economic activity using a quarterly VAR with stochastic volatility in mean. Stochastic volatility allows oil price uncertainty to vary separately from changes in the level of oil prices, and thus the impact of oil price uncertainty can be examined in a more flexible yet tractable way. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C3, C32, E, E3, E32, Q, Q4, Q43
Consumer Interest Rates and Retail Mutual Fund Flows Staff Working Paper 2012-39 Jesus Sierra This paper documents a link between the real and financial sides of the economy. We find that retail equity mutual fund flows in Canada are negatively related to current and past changes in a component of the prime and 5-year mortgage rates that is uncorrelated with government rates. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial services, Interest rates JEL Code(s): G, G2, G21, G23
Liquidity and Central Clearing: Evidence from the CDS Market Staff Working Paper 2012-38 Joshua Slive, Jonathan Witmer, Elizabeth Woodman An international initiative to increase the use of central clearing for OTC derivatives emerged as one of the reactions to the 2008 financial crisis. The move to central clearing is a fundamental change in the structure of the market. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets JEL Code(s): G, G3, G30, G38
Forecasting Inflation and the Inflation Risk Premiums Using Nominal Yields Staff Working Paper 2012-37 Bruno Feunou, Jean-Sébastien Fontaine We provide a decomposition of nominal yields into real yields, expectations of future inflation and inflation risk premiums when real bonds or inflation swaps are unavailable or unreliable due to their relative illiquidity. Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Econometric and statistical methods, Inflation and prices, Interest rates JEL Code(s): E, E4, E43, E47, G, G1, G12
The Role of Credit in International Business Cycles Staff Working Paper 2012-36 TengTeng Xu This paper examines the role of bank credit in modeling and forecasting business cycle fluctuations, and investigates the international transmission of US credit shocks, using a global vector autoregressive (GVAR) framework and associated country-specific error correction models. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Econometric and statistical methods, International financial markets JEL Code(s): C, C3, C32, E, E3, E32, E4, E44, G, G2, G21
When Lower Risk Increases Profit: Competition and Control of a Central Counterparty Staff Working Paper 2012-35 Jean-Sébastien Fontaine, Héctor Pérez Saiz, Joshua Slive We model the behavior of dealers in Over-the-Counter (OTC) derivatives markets where a small number of dealers trade with a continuum of heterogeneous clients (hedgers). Imperfect competition and (endogenous) default induce a familiar trade-off between competition and risk. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets, Financial stability, Financial system regulation and policies JEL Code(s): G, G1, G10, G18