Using Speed and Credit Limits to Address the Procyclicality of Initial Margin at Central Counterparties Staff discussion paper 2016-18 Nikil Chande, Nicholas Labelle This paper proposes a practical approach to address the procyclicality of initial margin at central counterparties (CCPs) that can work even in periods of extreme stress. The approach allows CCPs to limit the speed of margin increases resulting from spikes in market volatility. Content Type(s): Staff research, Staff discussion papers JEL Code(s): G, G1, G18 Research Theme(s): Financial system, Financial stability and systemic risk, Money and payments, Payment and financial market infrastructures
Bouncing Back: How Mothballing Curbs Prices Staff working paper 2024-51 Thibaut Duprey, Artur Kotlicki, Daniel E. Rigobon, Philip Schnattinger We investigate the macroeconomic impacts of mothballed businesses—those that closed temporarily—on sectoral equilibrium prices after a negative demand shock. Our results suggest that pandemic fiscal support for temporary closures may have eased inflationary pressures. Content Type(s): Staff research, Staff working papers JEL Code(s): C, C5, C55, C8, C81, D, D2, D22, E, E3, E32 Research Theme(s): Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Real economy and forecasting
March 27, 2015 Annual Report 2014 In 2014, inflation remained very close to target, the economy grew at a reasonable pace and there was no material increase in financial stability risks. Nonetheless, the economy still struggled against significant global headwinds. The 2014 Annual Report highlights the Bank of Canada’s key activities and achievements over the year, including a message from Governor Stephen S. Poloz, Management’s Discussion and Analysis, and the 2014 Financial Statements. Content Type(s): Publications, Annual Report
November 19, 2002 Purchasing-Power Parity: Definition, Measurement, and Interpretation Bank of Canada Review - Autumn 2002 Robert Lafrance, Lawrence L. Schembri This article examines the concept of purchasing-power parity (PPP) and its implications for the equilibrium value of the Canadian exchange rate. PPP has two main applications, as a theory of exchange rate determination and as a means to compare living standards across countries. Concerning exchange rate determination, PPP is mainly useful as a reminder that monetary policy has no long-run impact on the real exchange rate, since the exchange rate can deviate persistently from its PPP value in response to real shocks. To compare living standards across countries, PPP exchange rates constructed by comparing the prices of national consumption baskets are used to translate per capita national incomes into a common currency. These rates are useful because they offset differences in national price levels to obtain comparable measures of purchasing power, but they are not an accurate measure of the equilibrium value of the exchange rate. The authors conclude that the current deviation of the Canadian exchange rate from the PPP rate does not imply that the exchange rate is undervalued, but that this deviation reflects the impact of persistent real factors, in particular, lower commodity prices. Content Type(s): Publications, Bank of Canada Review articles
The Macroeconomic Implications of Coholding Staff working paper 2024-16 Michael Boutros, Andrej Mijakovic Coholder households simultaneously carry high-cost credit card debt and low-yield cash. We study the implications of this behavior for fiscal and monetary policy, finding that coholder households have smaller consumption responses in the short run but larger responses in the long run. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E21, E4, E44, E6, E62, G, G5, G51 Research Theme(s): Financial system, Household and business credit, Models and tools, Economic models, Monetary policy, Real economy and forecasting
August 23, 2004 The Evolution of Liquidity in the Market for Government of Canada Bonds Bank of Canada Review - Summer 2004 Stacey Anderson, Stéphane Lavoie Using turnover ratios, Anderson and Lavoie describe the recent evolution of liquidity in various secondary government bond markets, focusing specifically on the market for Government of Canada securities. They attribute much of the recent variation in liquidity to such cyclical factors as changes in the interest rate environment and investors' appetite for risk, as well as developments in equity markets in the late 1990s. They also examine longer-term structural and policy-related trends, including the rate of adoption of financial and technological innovations and the level of government borrowing and debt-management initiatives. Content Type(s): Publications, Bank of Canada Review articles
A Behavioral New Keynesian Model of a Small Open Economy Under Limited Foresight Staff working paper 2023-44 Seunghoon Na, Yinxi Xie This paper studies exchange rate dynamics by incorporating bounded rationality, that is, limited foresight, in a small open-economy model. This behavior of limited foresight helps explain several observations and puzzles in the data of exchange rate movements. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E4, E43, E7, E70, F, F3, F31, F4, F41 Research Theme(s): Financial markets and funds management, International markets and currencies, Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission
Survey of Indigenous Firms: A Snapshot of Wages, Prices and Financing in the Indigenous Business Sector in Canada Staff discussion paper 2024-4 Calista Cheung, James Fudurich, Janki Shah, Farrukh Suvankulov What sources of financing do Indigenous-owned businesses in Canada use, and what are their expectations about prices, wages and inflation? We find Indigenous-owned firms are significantly less reliant on financial institutions as sources of financing compared with non-Indigenous firms. We also find Indigenous-owned firms have higher inflation expectations and weaker wage-growth expectations. Content Type(s): Staff research, Staff discussion papers JEL Code(s): C, C8, C83, D, D0, G, G3, G38, J, J1, J15 Research Theme(s): Financial system, Household and business credit, Monetary policy, Inflation dynamics and pressures, Structural challenges, Demographics and labour supply
Fiscal and Monetary Stabilization Policy at the Zero Lower Bound: Consequences of Limited Foresight Staff working paper 2021-51 Michael Woodford, Yinxi Xie How do outcomes of monetary and fiscal stabilization policies at the zero lower bound change when decision makers have finite planning horizons in the economy? We explore the effects of limited foresight on policy tools and the interaction between monetary and fiscal policy. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E5, E52, E6, E63, E7 Research Theme(s): Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission, Monetary policy tools and implementation, Real economy and forecasting
Digital Transformation in the Service Sector: Insights from Consultations with Firms in Wholesale, Retail and Logistics Staff analytical note 2017-19 Wei Dong, James Fudurich, Lena Suchanek Firms increasingly rely on digital technologies such as e-commerce, cloud computing, big data, digital tracking and digital platforms that are reshaping business operations, business models and market structures. In this context, the Bank of Canada consulted with firms in wholesale, retail and logistics, as well as with related industry associations to yield insights on the adoption of digital technologies. Content Type(s): Staff research, Staff analytical notes JEL Code(s): D, D2, D22, E, E3, E31, L, L8, L81, L9, L92, O, O3, O33 Research Theme(s): Financial markets and funds management, Market structure, Monetary policy, Inflation dynamics and pressures, Structural challenges, Digitalization and productivity