Potential Output in Canada: 2019 Reassessment Staff analytical note 2019-10 Dany Brouillette, Julien Champagne, Carol Khoury, Natalia Kyui, Jeffrey Mollins, Youngmin Park Potential output is expected to grow on average at 1.8 per cent over 2019–21 and at 1.9 per cent in 2022. While the contribution of trend labour input to potential output growth is expected to decrease between 2019 and 2022, the contribution of trend labour productivity is projected to increase. Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E0, E00, E2, E22, E23, E24, E3, E37, E6 Research Theme(s): Monetary policy, Real economy and forecasting, Structural challenges, Demographics and labour supply, Digitalization and productivity
Frictional Capital Reallocation I: Ex Ante Heterogeneity Staff working paper 2019-4 Randall Wright, Sylvia Xiaolin Xiao, Yu Zhu This paper studies dynamic general equilibrium models where firms trade capital in frictional markets. Gains from trade arise due to ex ante heterogeneity: some firms are better at investment, so they build capital in the primary market; others acquire it in the secondary market. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E22, E4, E44 Research Theme(s): Financial system, Financial institutions and intermediation, Monetary policy, Monetary policy framework and transmission, Monetary policy tools and implementation, Real economy and forecasting
Can Capital Deepening Explain the Global Decline in Labor’s Share? Staff working paper 2019-3 Andrew Glover, Jacob Short We estimate an aggregate elasticity of substitution between capital and labor near or below one, which implies that capital deepening cannot explain the global decline in labor's share. Our methodology derives from transition paths in the neo-classical growth model. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E1, E13, E2, E22, E25, J, J3 Research Theme(s): Monetary policy, Real economy and forecasting, Structural challenges, Demographics and labour supply
The Role of Corporate Saving over the Business Cycle: Shock Absorber or Amplifier? Staff working paper 2018-59 Xiaodan Gao, Shaofeng Xu We document countercyclical corporate saving behavior with the degree of countercyclicality varying nonmonotonically with firm size. We then develop a dynamic stochastic general equilibrium model with heterogeneous firms to explain the pattern and study its implications for business cycles. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E20, E22, E3, E32, G, G3, G31, G32 Research Theme(s): Financial system, Financial institutions and intermediation, Household and business credit, Models and tools, Economic models, Monetary policy, Real economy and forecasting
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 JEL Code(s): C, C3, C32, E, E2, E21, E22, E4, E43, E47, E5, E52 Research Theme(s): Financial system, Household and business credit, Monetary policy, Monetary policy framework and transmission, Real economy and forecasting
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 JEL Code(s): E, E2, E22, E23, E24, F, F1, F19 Research Theme(s): Monetary policy, Real economy and forecasting, Structural challenges, Digitalization and productivity, International trade, finance and competitiveness
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 JEL Code(s): E, E0, E00, E2, E22, E23, E24, E3, E37, E6 Research Theme(s): Monetary policy, Real economy and forecasting, Structural challenges, Demographics and labour supply, Digitalization and productivity
Credit Crunches from Occasionally Binding Bank Borrowing Constraints Staff working paper 2017-57 Tom D. Holden, Paul Levine, Jonathan Swarbrick We present a model in which banks and other financial intermediaries face both occasionally binding borrowing constraints and costs of equity issuance. Near the steady state, these intermediaries can raise equity finance at no cost through retained earnings. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E22, E3, E32, E5, E51, G, G2 Research Theme(s): Financial system, Financial institutions and intermediation, Household and business credit, Models and tools, Economic models
Alternative Scenario to the October 2017 MPR Base-Case Projection: Higher Potential Growth Staff analytical note 2017-18 Jing Yang, Ben Tomlin, Olivier Gervais We construct an alternative scenario in which trend labour input and business investment are stronger than that expected in the Bank of Canada’s base-case projection in the October 2017 Monetary Policy Report. Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E2, E22, E24, E27, E5 Research Theme(s): Models and tools, Economic models, Monetary policy, Real economy and forecasting, Structural challenges, Demographics and labour supply
A Structural Interpretation of the Recent Weakness in Business Investment Staff analytical note 2017-7 Russell Barnett, Rhys R. Mendes Since 2012, business investment growth has slowed considerably in advanced economies, averaging a little less than 2 per cent versus the 4 per cent growth rates experienced in the period leading up to crisis. Several recent studies have attributed a large part of the weakness in business investment to cyclical factors, including soft aggregate demand, and, to a lesser degree, heightened uncertainty and tighter financial conditions. Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E2, E22, E3, E37 Research Theme(s): Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Real economy and forecasting, Structural challenges, Demographics and labour supply