Managing GDP Tail Risk Staff Working Paper 2020-3 Thibaut Duprey, Alexander Ueberfeldt Models for macroeconomic forecasts do not usually take into account the risk of a crisis—that is, a sudden large decline in gross domestic product (GDP). However, policy-makers worry about such GDP tail risk because of its large social and economic costs. Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Economic models, Financial stability, Financial system regulation and policies, Interest rates, Monetary policy, Monetary policy framework JEL Code(s): D, D8, E, E4, E44, E5, E52, E58, G, G0, G01
Furor over the Fed : Presidential Tweets and Central Bank Independence Staff Analytical Note 2019-33 Antoine Camous, Dmitry Matveev We illustrate how market data can be informative about the interactions between monetary and fiscal policy. Federal funds futures are private contracts that reflect investor’s expectations about monetary policy decisions. Content Type(s): Staff research, Staff analytical notes Topic(s): Central bank research, Credibility, Financial markets, Monetary policy JEL Code(s): E, E4, E44, E5, E52, E58
What Does Structural Analysis of the External Finance Premium Say About Financial Frictions? Staff Working Paper 2019-38 Jelena Zivanovic I use a structural vector autoregression (SVAR) with sign restrictions to provide conditional evidence on the behavior of the US external finance premium (EFP). The results indicate that the excess bond premium, a proxy for the EFP, reacts countercyclically to supply and monetary policy shocks and procyclically to demand shocks. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial markets, Recent economic and financial developments JEL Code(s): E, E3, E32, E4, E44
Financial Frictions, Durable Goods and Monetary Policy Staff Working Paper 2019-31 Ugochi Emenogu, Leo Michelis Financial frictions affect how much consumers spend on durable and non-durable goods. Borrowers can face both loan-to-value (LTV) constraints and payment-to-income (PTI) constraints. Content Type(s): Staff research, Staff working papers Topic(s): Financial system regulation and policies, Monetary policy JEL Code(s): E, E4, E44, E5, E52
Bridging Canadian Business Lending and Market-Based Risk Measures Staff Analytical Note 2019-26 Guillaume Ouellet Leblanc, Maxime Leboeuf Lending to business is central to economic growth because it supports investment by firms. Knowing how market participants view risk in the financial system can give the Bank of Canada information about future growth in business loans. In this note, we look at three market-based risk measures and find that sudden increases in the perception of risk in the Canadian banking system are associated with a weaker outlook for business loans and real gross domestic product. Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Financial markets JEL Code(s): E, E3, E32, E4, E44, G, G1, G12
Lending Standards, Productivity and Credit Crunches Staff Working Paper 2019-25 Jonathan Swarbrick We propose a macroeconomic model in which adverse selection in investment drives the amplification of macroeconomic fluctuations, in line with prominent roles played by the credit crunch and collapse of the asset-backed security market in the financial crisis. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Financial markets, Financial stability, Interest rates, Productivity JEL Code(s): E, E2, E22, E3, E32, E4, E44, G, G0, G01
The Effects of Inflation Targeting for Financial Development Staff Analytical Note 2019-21 Geoffrey R. Dunbar, Amy (Qijia) Li The adoption of inflation targeting (IT) by central banks leads to an increase of 10 to 20 percent in measures of financial development, with a lag. We also find evidence that the financial sector benefits of IT adoption were higher for early-adopting central banks. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Inflation targets, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E58
Assessing the Resilience of the Canadian Banking System Staff Analytical Note 2019-16 Charles Gaa, Xuezhi Liu, Cameron MacDonald, Xiangjin Shen The stability of the Canadian financial system, as well as its ability to support the Canadian economy, depends on the ability of financial institutions to absorb and manage major shocks. This is especially true for large banks, which perform services essential to the Canadian economy. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial stability JEL Code(s): C, C6, C63, E, E2, E27, E3, E37, E4, E44, G, G0, G01, G2, G21
Macroprudential Policy with Capital Buffers Staff Working Paper 2019-8 Josef Schroth The countercyclical capital buffer is part of Basel III, the set of regulatory measures developed in response to the financial crisis of 2007–09. This study focuses on how time-varying capital buffers can address inefficiencies in economies with endogenous financial crises. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Credit risk management, Financial stability, Financial system regulation and policies, Lender of last resort JEL Code(s): E, E1, E13, E3, E32, E4, E44
The Distributional Effects of Conventional Monetary Policy and Quantitative Easing: Evidence from an Estimated DSGE Model Staff Working Paper 2019-6 Stefan Hohberger, Romanos Priftis, Lukas Vogel This paper compares the distributional effects of conventional monetary policy and quantitative easing (QE) within an estimated open-economy DSGE model of the euro area. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Interest rates, Monetary policy, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E52, F, F4, F41