Ambiguity, Nominal Bond Yields and Real Bond Yields Staff Working Paper 2018-24 Guihai Zhao Equilibrium bond-pricing models rely on inflation being bad news for future growth to generate upward-sloping nominal yield curves. We develop a model that can generate upward-sloping nominal and real yield curves by instead using ambiguity about inflation and growth. Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, G, G0, G00, G1, G12
Interest Rate and Renewal Risk for Mortgages Staff Analytical Note 2018-18 Olga Bilyk, Cameron MacDonald, Brian Peterson In this note, we explore two types of risk faced by holders of mortgages and home equity lines of credit (HELOCs) in the context of rising interest rates: interest rate risk and renewal risk. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Credit and credit aggregates, Financial institutions, Interest rates, Recent economic and financial developments JEL Code(s): D, D1, E, E4, E5, G, G2, G21, G28
May 31, 2018 A Progress Report on the Economy Remarks Sylvain Leduc Association des économistes québécois and CFA Québec Québec, Québec Deputy Governor Sylvain Leduc discusses the issues that led Governing Council to hold the policy interest rate at 1.25 per cent in their May 30 decision. Content Type(s): Press, Speeches and appearances, Remarks Research Topic(s): Inflation and prices, Interest rates, Labour markets, Monetary policy, Monetary policy and uncertainty, Recent economic and financial developments
May 16, 2018 The (Mostly) Long and Short of Potential Output Remarks Lawrence L. Schembri Ottawa Economics Association and CFA Society Ottawa Ottawa, Ontario Deputy Governor Lawrence Schembri discusses the importance of potential output to monetary policy, as well as policy challenges and opportunities in a world of low potential output growth. Content Type(s): Press, Speeches and appearances, Remarks Research Topic(s): Inflation targets, Interest rates, Labour markets, Monetary policy, Monetary policy framework, Potential output, Productivity
May 1, 2018 Canada’s Economy and Household Debt: How Big Is the Problem? Remarks Stephen S. Poloz Yellowknife Chamber of Commerce Yellowknife, Northwest Territories Governor Poloz talks about household debt and how it will affect Canada’s economy and monetary policy for years. Content Type(s): Press, Speeches and appearances, Remarks Research Topic(s): Credit and credit aggregates, Financial services, Financial stability, Interest rates, Monetary policy, Recent economic and financial developments
How to Manage Macroeconomic and Financial Stability Risks: A New Framework Staff Analytical Note 2018-11 Alexander Ueberfeldt, Thibaut Duprey Financial system vulnerabilities increase the downside risk to future GDP growth. Macroprudential tightening significantly reduces financial stability risks associated with vulnerabilities. Monetary policy faces a trade-off between financial stability and macroeconomic risks. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Central bank research, Economic models, Financial stability, Financial system regulation and policies, Interest rates, Monetary policy, Monetary policy framework JEL Code(s): E, E4, E44, E5, E52, E58, G, G0, G01
The Macroeconomic Effects of Quantitative Easing in the Euro Area: Evidence from an Estimated DSGE Model Staff Working Paper 2018-11 Stefan Hohberger, Romanos Priftis, Lukas Vogel This paper estimates an open-economy dynamic stochastic general equilibrium model with Bayesian techniques to analyse the macroeconomic effects of the European Central Bank’s (ECB’s) quantitative easing (QE) programme. Using data on government debt stocks and yields across maturities, we identify the parameter governing portfolio adjustment in the private sector. Content Type(s): Staff research, Staff working papers Research Topic(s): Economic models, Interest rates, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E52, F, F4, F41
Which Model to Forecast the Target Rate? Staff Working Paper 2017-60 Bruno Feunou, Jean-Sébastien Fontaine, Jianjian Jin Specifications of the Federal Reserve target rate that have more realistic features mitigate in-sample over-fitting and are favored in the data. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets, Interest rates JEL Code(s): E, E4, E43
The Impacts of Monetary Policy Statements Staff Analytical Note 2017-22 Bruno Feunou, Corey Garriott, James Kyeong, Raisa Leiderman In this note, we find that market participants react to an unexpected change in the tone of Canadian monetary policy statements. When the market perceives that the Bank of Canada plans to tighten (or alternatively, loosen) the monetary policy earlier than previously expected, the Canadian dollar appreciates (or depreciates) and long-term Government of Canada bond yields increase (or decrease). The tone of a statement is particularly relevant to the market when the policy rate has been unchanged for some time. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Asset pricing, Exchange rates, Interest rates, Monetary policy communications, Monetary policy transmission JEL Code(s): E, E4, E43, E5, E52, F, F3, F31, G, G1, G12
November 16, 2017 An Update on the Neutral Rate of Interest Bank of Canada Review - Autumn 2017 José Dorich, Abeer Reza, Subrata Sarker The neutral rate serves as a benchmark for measuring monetary stimulus and provides a medium- to long-run anchor for the real policy rate. Global neutral rate estimates have been falling over the past few decades. Factors such as population aging, high corporate savings, and low trend productivity growth are likely to continue supporting a low global neutral rate. These global factors as well as domestic factors are exerting downward pres-sure on the Canadian real neutral rate, which is estimated to be between 0.5 to 1.5 per cent. This low neutral rate has important implications for monetary policy and financial stability. Content Type(s): Publications, Bank of Canada Review articles Research Topic(s): Interest rates, International topics, Potential output, Recent economic and financial developments JEL Code(s): E, E4, E43, E5, E52, E58, F, F0, F01, F4, F43, O, O4