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231 Results

Gazing at r-star: A Hysteresis Perspective

Staff Working Paper 2023-5 Paul Beaudry, Katya Kartashova, Césaire Meh
Many explanations for the decline in real interest rates over the last 30 years point to the role that population aging or rising income inequality plays in increasing the long-run aggregate demand for assets. Notwithstanding the importance of such factors, the starting point of this paper is to show that the major change driving household asset demand over this period is instead an increased desire—for a given age and income level—to hold assets.

Macroeconomic Disasters and Consumption Smoothing: International Evidence from Historical Data

Staff Working Paper 2023-4 Lorenzo Pozzi, Barbara Sadaba
Does consumption smoothing fundamentally decrease during macroeconomic disasters? This paper uses a large historical dataset (1870–2016) for 16 industrial economies to show that during macroeconomic disasters (e.g., wars, pandemics, depressions) aggregate consumption and income are significantly less decoupled than during normal times.

Financial Constraints and Corporate Investment in China

Staff Discussion Paper 2022-22 Kun Mo, Michel Soudan
Financial constraints deter firms from pursuing optimal investment plans. In China, we find privately owned firms face greater financial constraints than state-owned enterprises (SOEs). This can be explained by our finding that lenders appear less concerned about the credit risk of SOEs, which causes distortions in the allocation of credit.
Content Type(s): Staff research, Staff discussion papers Topic(s): Financial markets, Firm dynamics JEL Code(s): E, E2, E22, G, G1, G3

Monetary Policy, Credit Constraints and SME Employment

Staff Working Paper 2022-49 Julien Champagne, Émilien Gouin-Bonenfant
We revisit an old question: how do financial constraints affect the transmission of monetary policy to the real economy? To answer this question, we propose a simple empirical strategy that combines firm-level employment and balance sheet data, identified monetary policy shocks and survey data on financing activities.

Harnessing the benefit of state-contingent forward guidance

Staff Analytical Note 2022-13 Vivian Chu, Yang Zhang
A low level of the neutral rate of interest increases the likelihood that a central bank’s policy rate will reach its effective lower bound (ELB) in future economic downturns. In a low neutral rate environment, using an extended monetary policy toolkit including forward guidance helps address the ELB challenge. Using the Bank’s Terms-of-Trade Economic Model, we assess the benefits and limitations of a state-contingent forward guidance implemented within a flexible inflation targeting framework.

The Central Bank’s Dilemma: Look Through Supply Shocks or Control Inflation Expectations?

Staff Working Paper 2022-41 Paul Beaudry, Thomas J. Carter, Amartya Lahiri
When countries are hit by supply shocks, central banks often face the dilemma of either looking through such shocks or reacting to them to ensure that inflation expectations remain anchored. In this paper, we propose a tractable framework to capture this dilemma and then explore optimal policy under a range of assumptions about how expectations are formed.

Windfall Income Shocks with Finite Planning Horizons

Staff Working Paper 2022-40 Michael Boutros
How do households respond when they receive unanticipated income, such as an inheritance or government stimulus cheque? This paper studies these windfall income shocks through a model of household behaviour that generates a realistic consumption response for households along the entire distribution of wealth.

How Do People View Price and Wage Inflation?

Staff Working Paper 2022-34 Monica Jain, Olena Kostyshyna, Xu Zhang
This paper examines household-level data from the Canadian Survey of Consumer Expectations (CSCE) to understand households’ expectations about price and wage inflation, how those expectations link to views about labour market conditions and the subsequent impact on households’ outlook for real spending growth.

Endogenous Liquidity and Capital Reallocation

Staff Working Paper 2022-27 Wei Cui, Randall Wright, Yu Zhu
We study economies where firms acquire capital in primary markets then retrade it in secondary markets after information on idiosyncratic productivity arrives. Our secondary markets incorporate bilateral trade with search, bargaining and liquidity frictions.
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