Structural Inflation Models with Real Wage Rigidities: The Case of Canada Staff Working Paper 2009-21 Jean-Marie Dufour, Lynda Khalaf, Maral Kichian Real wage rigidities have recently been proposed as a way of building intrinsic persistence in inflation within the context of New Keynesian Phillips Curves. Using two recent illustrative structural models, we evaluate empirically the importance of real wage rigidities in the data and the extent to which such models provide useful information regarding price stickiness. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Inflation and prices, Labour markets JEL Code(s): C, C1, C13, C5, C52, E, E3, E31
The Equity Premium and the Volatility Spread: The Role of Risk-Neutral Skewness Staff Working Paper 2009-20 Bruno Feunou, Jean-Sébastien Fontaine, Roméo Tedongap We introduce the Homoscedastic Gamma [HG] model where the distribution of returns is characterized by its mean, variance and an independent skewness parameter under both measures. The model predicts that the spread between historical and risk-neutral volatilities is a function of the risk premium and of skewness. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets JEL Code(s): G, G1, G12, G13
Structural Multi-Equation Macroeconomic Models: Identification-Robust Estimation and Fit Staff Working Paper 2009-19 Jean-Marie Dufour, Lynda Khalaf, Maral Kichian Weak identification is likely to be prevalent in multi-equation macroeconomic models such as in dynamic stochastic general equilibrium setups. Identification difficulties cause the breakdown of standard asymptotic procedures, making inference unreliable. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Inflation and prices JEL Code(s): C, C5, C52, C53, E, E3, E37
Simulations du ratio du service de la dette des consommateurs en utilisant des données micro Staff Working Paper 2009-18 Ramdane Djoudad The author constructs a formal analytic framework to simulate the impact of various economic shocks on the household debt-service ratio, using data from the Canadian Financial Monitor (CFM) survey. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Financial stability JEL Code(s): C, C1, C15, C3, C31, D, D1, D14, E, E5, E51
Adopting Price-Level Targeting under Imperfect Credibility in ToTEM Staff Working Paper 2009-17 Gino Cateau, Oleksiy Kryvtsov, Malik Shukayev, Alexander Ueberfeldt Using the Bank of Canada's main projection and policy-analysis model, ToTEM, this paper measures the welfare gains of switching from inflation targeting to price-level targeting under imperfect credibility. Following the policy change, private agents assign a probability to the event that the policy-maker will revert to inflation-targeting next period. Content Type(s): Staff research, Staff working papers Research Topic(s): Monetary policy framework, Monetary policy implementation JEL Code(s): E, E3, E31, E5, E52
Real Effects of Price Stability with Endogenous Nominal Indexation Staff Working Paper 2009-16 Césaire Meh, Vincenzo Quadrini, Yaz Terajima 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). Content Type(s): Staff research, Staff working papers Research Topic(s): Economic models, Financial markets, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E2, E21, E3, E31, E4, E44, E5, E52
Heterogeneous Beliefs and Housing-Market Boom-Bust Cycles in a Small Open Economy Staff Working Paper 2009-15 Hajime Tomura This paper introduces heterogeneous beliefs among households in a small open economy model for the Canadian economy. The model suggests that simultaneous boom-bust cycles in house prices, output, investment, consumption and hours worked emerge when credit-constrained mortgage borrowers expect that future house prices will rise and this expectation is neither shared by savers nor realized ex-post. Content Type(s): Staff research, Staff working papers Research Topic(s): Credit and credit aggregates, Financial stability, Inflation targets JEL Code(s): E, E4, E44, E5, E52
Testing for Financial Contagion with Applications to the Canadian Banking System Staff Working Paper 2009-14 Fuchun Li The author proposes a new test for financial contagion based on a non-parametric measure of the cross-market correlation. The test does not depend on the assumption that the data are drawn from a given probability distribution; therefore, it allows for maximal flexibility in fitting into the data. Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Econometric and statistical methods, Financial stability JEL Code(s): C, C1, C12, G, G0, G01, G1, G15
Price Movements in the Canadian Residential Mortgage Market Staff Working Paper 2009-13 Jason Allen, Darcey McVanel The authors empirically analyze the price-setting behaviour of the major Canadian banks in the residential mortgage market over the period 1991–2007. They use weekly posted prices of the major mortgage providers to study the degree of competition in mortgage price setting. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial services JEL Code(s): D, D4, G, G2
Complex Ownership and Capital Structure Staff Working Paper 2009-12 Teodora Paligorova, Zhaoxia Xu This paper investigates the impact of pyramid ownership structure and multiple controlling shareholders on firm leverage. Pyramids, having at least one controlling shareholder and a subsidiary, rely significantly more on debt financing than non-pyramid firms. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets, International topics JEL Code(s): G, G3, G31, G32