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A model of over-the-counter markets is proposed. Some asset buyers are informed in that they can identify high quality assets. Heterogeneous sellers with private information choose what type of buyers they want to trade with.

Solving macroeconomic models is difficult. One challenge is the occasionally binding constraint of the zero lower bound on nominal interest rates. This paper reviews various ways to solve models that include this feature.

Statistical inference--both estimation and testing--for stochastic volatility (SV) models is known to be challenging and computationally demanding. We propose simple and efficient estimators for SV models with conditionally heavy-tailed error distributions, particularly the Student’s t and Generalized Exponential Distributions (GED). The estimators rely on a small set of moment conditions derived from ARMA-type representations of SV models, with an option to apply “winsorization” to improve stability and finite-sample performance. Except for the degrees of-freedom parameter, closed-form expressions are available for all other parameters, extending Ahsan and Dufour (2019, 2021), thus eliminating the need for numerical optimization or initial values. We derive the estimators’ asymptotic distribution and show that, due to their analytical tractability, they support reliable, and even exact, simulation-based inference via Monte Carlo or bootstrap methods. We assess their performance through extensive simulations and demonstrate their practical relevance in financial return data, which strongly reject the normality assumption in favor of heavy-tailed models.

It has not been an easy year. All of you have been running companies and making decisions under very uncertain conditions. You have had to deal with corporate and accounting issues. Markets have been volatile. And geopolitical events have shaken confidence.

This paper shows point identification in first-price auction models with risk aversion and unobserved auction heterogeneity by exploiting multiple bids from each auction and variation in the number of bidders. The required exclusion restriction is shown to be consistent with a large class of entry models.

This newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.

Up to now, world capital markets have been managing these imbalances in a reasonably smooth way. In the short term, it is reasonable to expect that they will continue to do so. But over the medium term, imbalances of this magnitude are not sustainable.

In 2024, the Bank of Canada reviewed and updated its Contingent Term Repo Facility policy, incorporating lessons learned from the COVID-19 pandemic and other global market developments, such as the UK gilt crisis in September 2022. This paper accompanies the March 17, 2025, Contingent Term Repo Facility market notice and provides background information and further details about the design of the revised policy.

Increased sovereign credit risk is often associated with sharp currency movements. Therefore, expectations of the probability of a sovereign default event can convey important information regarding future movements of exchange rates.

This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.