On the Value of Virtual Currencies Staff Working Paper 2016-42 Wilko Bolt, Maarten van Oordt This paper develops an economic framework to analyze the exchange rate of virtual currency. Three components are important: first, the current use of virtual currency to make payments; second, the decision of forward-looking investors to buy virtual currency (thereby effectively regulating its supply); and third, the elements that jointly drive future consumer adoption and merchant acceptance of virtual currency. Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Digital currencies and fintech, Exchange rates JEL Code(s): E, E4, E42, E5, E51, F, F3, F31, G, G1
The Impact of Macroprudential Housing Finance Tools in Canada: 2005–10 Staff Working Paper 2016-41 Jason Allen, Timothy Grieder, Brian Peterson, Tom Roberts This paper combines loan-level administrative data with household-level survey data to analyze the impact of recent macroprudential policy changes in Canada using a microsimulation model of mortgage demand of first-time homebuyers. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial system regulation and policies JEL Code(s): C, C6, C63, D, D1, D14, G, G2, G28
Leaning Within a Flexible Inflation-Targeting Framework: Review of Costs and Benefits Staff Discussion Paper 2016-17 Denis Gorea, Oleksiy Kryvtsov, Tamon Takamura This note examines the merits of monetary policy adjustments in response to financial stability concerns, taking into account changes in the state of knowledge since the renewal of the inflation-targeting agreement in 2011. A key financial system vulnerability in Canada is elevated household indebtedness: as more and more households are nearing their debt-capacity limits, the likelihood and severity of a large negative correction in housing markets are also increasing. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Financial stability, Monetary policy framework JEL Code(s): E, E0, E4, E44, E5, E52, E58, G, G1, G18
Assessment of the Effects of Macroprudential Tightening in Canada Staff Analytical Note 2016-12 Martin Kuncl During the period of 2008 to 2012, the rules for government-backed mortgage insurance were tightened on four occasions. In this note, we estimate the effects through a simple econometric exercise using a vector error-correction model (VECM). Content Type(s): Staff research, Staff analytical notes Research Topic(s): Credit and credit aggregates, Financial system regulation and policies, Housing JEL Code(s): C, C3, C32, E, E6, E65, G, G2, G28
Are Counterparty Arrangements in Reinsurance a Threat to Financial Stability? Staff Working Paper 2016-39 Matt Davison, Darrell Leadbetter, Bin Lu, Jane Voll Interconnectedness among insurers and reinsurers at a global level is not well understood and may pose a significant risk to the sector, with implications for the macroeconomy. Models of the complex interactions among reinsurers and with other participants in the financial system and the real economy are at a very early stage of development. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial services, Financial stability, Financial system regulation and policies JEL Code(s): C, C6, C63, G, G1, G10, G15, G18, G2, G22, G28
Credit Risk and Collateral Demand in a Retail Payment System Staff Discussion Paper 2016-16 Héctor Pérez Saiz, Gabriel Xerri The recent financial crisis has led to the development of new regulations to control risk in designated payment systems, and the implementation of new credit risk management standards is one of the key issues. In this paper, we study various credit risk management schemes for the Canadian retail payment system (ACSS) that are designed to cover the exposure of a defaulting member. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Econometric and statistical methods, Financial stability, Payment clearing and settlement systems JEL Code(s): C, C5, C58, G, G2, G21, G23
Time-Varying Crash Risk: The Role of Stock Market Liquidity Staff Working Paper 2016-35 Peter Christoffersen, Bruno Feunou, Yoontae Jeon, Chayawat Ornthanalai We estimate a continuous-time model with stochastic volatility and dynamic crash probability for the S&P 500 index and find that market illiquidity dominates other factors in explaining the stock market crash risk. While the crash probability is time-varying, its dynamic depends only weakly on return variance once we include market illiquidity as an economic variable in the model. Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Econometric and statistical methods, Financial stability JEL Code(s): G, G0, G01, G1, G12
International Banking and Cross-Border Effects of Regulation: Lessons from Canada Staff Working Paper 2016-34 H. Evren Damar, Adi Mordel We study how changes in prudential requirements affect cross-border lending of Canadian banks by utilizing an index that aggregates adjustments in key regulatory instruments across jurisdictions. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): F, F3, F34, G, G0, G01, G2, G21
The Role of Central Banks in Promoting Financial Stability: An International Perspective Staff Discussion Paper 2016-15 Rose Cunningham, Christian Friedrich The 2007–09 global financial crisis has led policy-makers around the world, including central banks, to refocus their efforts to promote financial stability. As part of this process, central banks became quite active in supporting financial stability in a variety of ways, such as publicly sharing their assessments of financial system vulnerabilities and risks and helping to strengthen regulation, supervision and macroprudential measures. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Financial stability, Financial system regulation and policies JEL Code(s): E, E5, G, G0, G01, G2, G28
Global Macro Risks in Currency Excess Returns Staff Working Paper 2016-32 Kimberly Berg, Nelson C. Mark We study a cross section of carry-trade-generated currency excess returns in terms of their exposure to global fundamental macroeconomic risk. Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Exchange rates, Interest rates JEL Code(s): E, E2, E21, E4, E43, F, F3, F31, G, G1, G12