The Framework for Risk Identification and Assessment Technical Report No. 113 Cameron MacDonald, Virginie Traclet Risk assessment models are an important component of the Bank’s analytical tool kit for assessing the resilience of the financial system. We describe the Framework for Risk Identification and Assessment (FRIDA), a suite of models developed at the Bank of Canada to quantify the impact of financial stability risks to the broader economy and a range of financial system participants (households, businesses and banks). Content Type(s): Staff research, Technical reports Research Topic(s): Economic models, Financial institutions, Financial stability, Housing JEL Code(s): C, C3, C5, C6, C7, D, D1, E, E0, E00, E2, E27, E3, E37, E4, E47, G, G0, G2, G21
Disaggregating Household Sensitivity to Monetary Policy by Expenditure Category Staff Analytical Note 2018-32 Tony Chernis, Corinne Luu Because the Bank of Canada has started withdrawing monetary stimulus, monitoring the transmission of these changes to monetary policy will be important. Subcomponents of consumption and housing will likely respond differently to a monetary policy tightening, both in terms of the aggregate effect and timing. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Business fluctuations and cycles, Domestic demand and components, Econometric and statistical methods, Housing, Interest rates, Monetary policy transmission, Recent economic and financial developments JEL Code(s): C, C3, C32, E, E2, E21, E22, E4, E43, E47, E5, E52
Characterizing Canada’s Export Sector by Industry: A Supply-Side Perspective Staff Analytical Note 2018-27 Taylor Webley This note examines supply-side trends in Canadian non-energy industries and their implications for export performance. Between 2002 and 2016, capital stocks and total labour input declined in many industries that export non-energy goods. These soft trends in the factors of production have likely contributed to the decline in non-energy exports in about half of the goods industries analyzed in this note. Content Type(s): Staff research, Staff analytical notes Research Topic(s): International topics, Productivity JEL Code(s): E, E2, E22, E23, E24, F, F1, F19
The Welfare Cost of Inflation Revisited: The Role of Financial Innovation and Household Heterogeneity Staff Working Paper 2018-40 Shutao Cao, Césaire Meh, José-Víctor Ríos-Rull, Yaz Terajima We document that, across households, the money consumption ratio increases with age and decreases with consumption, and that there has been a large increase in the money consumption ratio during the recent era of very low interest rates. We construct an overlapping generations (OLG) model of money holdings for transaction purposes subject to age (older households use more money), cohort (younger generations are exposed to better transaction technology), and time effects (nominal interest rates affect money holdings). Content Type(s): Staff research, Staff working papers Research Topic(s): Inflation: costs and benefits JEL Code(s): E, E2, E21, E4, E41
Sources of Borrowing and Fiscal Multipliers Staff Working Paper 2018-32 Romanos Priftis, Srecko Zimic This paper finds that debt-financed government spending multipliers vary considerably depending on the location of the debt buyer. In a sample of 33 countries, we find that government spending multipliers are larger when government purchases are financed by issuing debt to foreign investors (non-residents), compared with when government purchases are financed by issuing debt to home investors (residents). Content Type(s): Staff research, Staff working papers Research Topic(s): Debt management, Economic models, Fiscal policy, International financial markets JEL Code(s): E, E2, E6, E62, F, F4, F41, H, H3
Reconciling Jaimovich-Rebelo Preferences, Habit in Consumption and Labor Supply Staff Working Paper 2018-26 Tom D. Holden, Paul Levine, Jonathan Swarbrick This note studies a form of a utility function of consumption with habit and leisure that (a) is compatible with long-run balanced growth, (b) hits a steady-state observed target for hours worked and (c) is consistent with micro-econometric evidence for the inter-temporal elasticity of substitution and the Frisch elasticity of labor supply. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Economic models, Labour markets JEL Code(s): E, E2, E21, E24
Bending the Curves: Wages and Inflation Staff Analytical Note 2018-15 Dany Brouillette, Madigan Dockrill, Helen Lao, Laurence Savoie-Chabot As economic slack continues to be absorbed and the labour market tightens, wage growth and inflation could increase faster than expected, which would suggest convexity in their Phillips curves. This note investigates whether there is convexity in the Phillips curves for Canadian wage growth and inflation by testing different empirical approaches over the post-inflation-targeting period. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Inflation and prices, Labour markets JEL Code(s): E, E2, E24, E3, E31, J, J3
Potential Output in Canada: 2018 Reassessment Staff Analytical Note 2018-10 Andrew Agopsowicz, Dany Brouillette, Bassirou Gueye, Julien McDonald-Guimond, Jeffrey Mollins, Youngmin Park This note summarizes the reassessment of potential output, conducted by the Bank of Canada for the April 2018 Monetary Policy Report. Overall, the profile for potential output growth is expected to remain flat at 1.8 per cent between 2018 and 2020 and 1.9 per cent in 2021. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Labour markets, Potential output, Productivity JEL Code(s): E, E0, E00, E2, E22, E23, E24, E3, E37, E6
Assessing Global Potential Output Growth: April 2018 Staff Analytical Note 2018-9 Richard Beard, Anne-Katherine Cormier, Michael Francis, Katerina Gribbin, Justin-Damien Guénette, Christopher Hajzler, James Ketcheson, Kun Mo, Louis Poirier, Peter Selcuk, Kristina Hess This note presents our estimates of potential output growth for the global economy through 2020. Overall, we expect global potential output growth to remain broadly stable over the projection horizon, averaging 3.3 per cent, although there is considerable uncertainty surrounding these estimates. Content Type(s): Staff research, Staff analytical notes Research Topic(s): International topics, Potential output, Productivity JEL Code(s): E, E1, E10, E2, E20, O, O4
Did U.S. Consumers Respond to the 2014–2015 Oil Price Shock? Evidence from the Consumer Expenditure Survey Staff Working Paper 2018-13 Patrick Alexander, Louis Poirier The impact of oil price shocks on the U.S. economy is a topic of considerable debate. In this paper, we examine the response of U.S. consumers to the 2014–2015 negative oil price shock using representative survey data from the Consumer Expenditure Survey. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Domestic demand and components, Recent economic and financial developments JEL Code(s): D, D1, D12, E, E2, E21, Q, Q4, Q43