Monetary policy, interest rates and the Canadian dollar Staff Analytical Note 2025-2 Jean-Sébastien Fontaine, Ingomar Krohn, James Kyeong, Rishi Vala, Konrad Zmitrowicz Changes in domestic interest rates affect the value of the Canadian dollar less than changes in the risk premium do. These variations often occur when a broad shift in risk sentiment occurs in global markets. Ultimately, the value of the currency reflects long-term, slow-moving features of the economies. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Asset pricing, Econometric and statistical methods, Exchange rates, Interest rates, Monetary policy JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G12
High-Cost Consumer Credit: Desperation, Temptation and Default Staff Working Paper 2025-6 Joaquín Saldain I study the welfare consequences of regulations on high-cost consumer credit in the United States and find that borrowing limits have distributional impacts on households with self-control issues. Content Type(s): Staff research, Staff working papers Research Topic(s): Credit and credit aggregates, Financial markets, Interest rates JEL Code(s): E, E2, E7, E71, G, G5, G51
Anchored Inflation Expectations: What Recent Data Reveal Staff Working Paper 2025-5 Olena Kostyshyna, Isabelle Salle, Hung Truong We analyze micro-level data from the Canadian Survey of Consumer Expectations through the lens of a heterogeneous-expectations model to study how inflation expectations form over the business cycle. We provide new insights into how households form expectations, documenting that forecasting behaviours, attention and noise in beliefs vary across socio-demographic groups and correlate with views about monetary policy. Content Type(s): Staff research, Staff working papers Research Topic(s): Inflation and prices JEL Code(s): D, D8, D84, E, E3, E31, E7, E70
Quantile VARs and Macroeconomic Risk Forecasting Staff Working Paper 2025-4 Stéphane Surprenant This paper provides an extensive evaluation of the performance of quantile vector autoregression (QVAR) to forecast macroeconomic risk. Generally, QVAR outperforms standard benchmark models. Moreover, QVAR and QVAR augmented with factors perform equally well. Both are adequate for modeling macroeconomic risks. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles JEL Code(s): C, C5, C53, C55, E, E3, E37
Tech Reluctance: Fostering Empathy for Canadians Facing Challenges with Digital Systems Staff Discussion Paper 2025-2 Sebastian Hernandez, Helena Wang, Badr Omrane, Vera Roberts, David Pereyra We find that individuals who require help performing banking tasks or who are reluctant to adopt technology avoid digital payment systems they expect to lack usability. Addressing these issues through standard accessibility practices, live assistance and thoughtful interface design can enhance user interaction and trust. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Accessibility, Bank notes, Central bank research, Digital currencies and fintech, Digitalization, Financial services JEL Code(s): A, A1, A14, C, C9, C90, D, D8, D83, O, O3, O33, Y, Y8, Y80
Differentiable, Filter Free Bayesian Estimation of DSGE Models Using Mixture Density Networks Staff Working Paper 2025-3 Chris Naubert I develop a method for Bayesian estimation of globally solved, non-linear macroeconomic models. The method uses a mixture density network to approximate the initial state distribution. The mixture density network results in more reliable posterior inference compared with the case when the initial states are set to their steady-state values. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Economic models JEL Code(s): C, C6, C61, C63, E, E3, E37, E4, E47
Non-Bank Dealing and Liquidity Bifurcation in Fixed-Income Markets Staff Working Paper 2025-2 Michael Brolley, David Cimon We model non-bank entry into fixed-income markets and state-dependent liquidity. Non-bank financial institutions improve liquidity more during normal times than in stress. Banks may become less reliable to marginal clients, exacerbating the difference in liquidity between normal and stressed times. Central bank lending during stress may limit this harmful division. Content Type(s): Staff research, Staff working papers Research Topic(s): Economic models, Financial institutions, Financial markets, Market structure and pricing JEL Code(s): G, G1, G10, G2, G20, G21, G23, L, L1, L10, L13, L14
The International Exposure of the Canadian Banking System Staff Working Paper 2025-1 Christian Friedrich, Hanno Friedrich, Nick Lawrence, Javier Cortes Orihuela, Phoebe Tian In 2023, the share of Canadian banks’ foreign assets and liabilities amounted to around 50%. While Canadian banks engage domestically mostly with households and non-financial corporations, their most common counterparties abroad are non-bank financial institutions. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial stability, International financial markets, International topics JEL Code(s): F, F2, F21, F23, F3, F31, F32, G, G2, G21, G23, G3
Privacy-Enhancing Technologies for CBDC Solutions Staff Discussion Paper 2025-1 Rakesh Arora, Han Du, Raza Ali Kazmi, Duc-Phong Le Privacy-enhancing technologies (PETs) could offer solutions to safeguard end-user privacy and meet rigorous data protection standards for central bank digital currencies. We consider how PETs can transform privacy design in financial systems and the implications of their broader adoption. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Central bank research, Digital currencies and fintech, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): E, E4, E42, O, O3, O31
Using new loan data to better understand mortgage holders Staff Analytical Note 2025-1 Odae Al Aboud, Saarah Sheikh, Adam Su, Yang Xu The Bank of Canada is using an enhanced dataset that tracks the stock of outstanding mortgages and home equity lines of credit held by federally regulated lenders. This paper highlights some of the new details in the dataset and how they impact the Bank’s understanding of the mortgage market. 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, D12, D14, G, G2, G21, G28