Potential output and the neutral rate in Canada: 2023 assessment Staff Analytical Note 2023-6 Julien Champagne, Christopher Hajzler, Dmitry Matveev, Harlee Melinchuk, Antoine Poulin-Moore, Galip Kemal Ozhan, Youngmin Park, Temel Taskin We expect that potential output growth will rebound from 1.4% in 2022 to 2.2% on average between 2023 and 2026. We revised down our estimates of growth over 2022–25 relative to the April 2022 assessment. The Canadian nominal neutral rate remains unchanged—in the range of 2% to 3%. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Economic models, Interest rates, Labour markets, Monetary policy, Potential output, Productivity JEL Code(s): E, E2, E3, E4, E5
Assessing global potential output growth and the US neutral rate: April 2023 Staff Analytical Note 2023-5 Salma Ahmed, Aviel Avshalumov, Tania Chaar, Eshini Ekanayake, Helen Lao, Louis Poirier, Jenna Rolland-Mills, Argyn Toktamyssov, Lin Xiang We expect global potential output growth to increase from 2.5% in 2022 to 2.8% by 2026. Compared with the April 2022 staff assessment, global potential output growth is marginally slower. The current range for the US neutral rate is 2% to 3%, unchanged from the last annual assessment. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Interest rates, Monetary policy, Potential output, Productivity JEL Code(s): E, E1, E2, E4, E5, F, F0, O, O4
How Banks Create Gridlock to Save Liquidity in Canada's Large Value Payment System Staff Working Paper 2023-26 Rodney J. Garratt, Zhentong Lu, Phoebe Tian We show how participants in Canada’s new high-value payment system save liquidity by exploiting the new gridlock resolution arrangement. The findings have important implications for the design of these systems and shed light on financial institutions’ liquidity preference. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E58, G, G2, G21
A Review of the Bank of Canada’s Support of Key Financial Markets During the COVID-19 Crisis Staff Discussion Paper 2023-9 Joshua Fernandes, Michael Mueller The COVID-19 pandemic placed unprecedented strain on the global financial system. We describe how the Bank of Canada responded to the rapidly deteriorating liquidity in core Canadian fixed-income markets. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Coronavirus disease (COVID-19), Financial markets, Market structure and pricing, Monetary policy and uncertainty JEL Code(s): E, E4, E44, E5, E58, G, G0, G01
From LVTS to Lynx: Quantitative Assessment of Payment System Transition Staff Working Paper 2023-24 Ajit Desai, Zhentong Lu, Hiru Rodrigo, Jacob Sharples, Phoebe Tian, Nellie Zhang We quantitatively assess the changes in participants’ payment behaviour from modernizing Canada's high-value payments system to Lynx. Our analysis suggests that Lynx's liquidity-saving mechanism encourages liquidity pooling and early payments submission, resulting in improved efficiency for participants but with slightly increased payment delays. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial services, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C1, C10, E, E4, E42, G, G2, G28
Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media Staff Working Paper 2023-23 Alistair Macaulay, Wenting Song News media present competing interpretations of what breaking news implies for the macroeconomy. Recent examples include news reporting on high inflation and yield curve inversions. Do these narratives shape macroeconomic sentiment? In this paper, we highlight the importance of narratives using evidence linking traditional media and social media. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets, Inflation and prices, Monetary policy JEL Code(s): D, D8, D84, E, E3, E32, E4, E43, E44, E5, G, G1
The Impact of Unemployment Insurance and Unsecured Credit on Business Cycles Staff Working Paper 2023-22 Michael Irwin This paper studies how unsecured consumer credit impacts the extent to which unemployment insurance (UI) policies smooth aggregate consumption fluctuations over the business cycle. Using a general equilibrium real business cycle model, I find that unsecured credit amplifies the extent to which UI smooths cyclical consumption fluctuations. Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Economic models, Fiscal policy, Labour markets JEL Code(s): E, E2, E21, E24, E3, E32, E4, E44, E6, E62
Central Bank Forecasting: A Survey Staff Working Paper 2023-18 Carola Conces Binder, Rodrigo Sekkel We review the literature on central bank forecasting with a special focus on the Federal Reserve, European Central Bank, Bank of England and Bank of Canada. Content Type(s): Staff research, Staff working papers Research Topic(s): Monetary policy JEL Code(s): E, E4, E47, E5, E52, E58
A Review of the Bank of Canada’s Market Operations Related to COVID-19 Staff Discussion Paper 2023-6 Grahame Johnson This paper reviews the range of extraordinary programs launched by the Bank of Canada in response to the pandemic-related financial market disruption. It provides some recommendations for future interventions to ensure the programs are appropriately structured for the financial and economic stresses they are intended to address. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Coronavirus disease (COVID-19), Financial markets, Financial stability JEL Code(s): D, D4, D47, E, E4, E41, E5, G, G0, G01, G1, G14, G2, G21, G23, H, H1, H12
A central bank digital currency for offline payments Staff Analytical Note 2023-2 Cyrus Minwalla, John Miedema, Sebastian Hernandez, Alexandra Sutton-Lalani Offline functionality is a key consideration for a potential CBDC. We describe the different types of offline functionality based on their duration outside of network connection—either intermittent (for short periods) or extended (for longer periods). We discuss the advantages and drawbacks of each and consider implications for end-user devices, system resilience and universal accessibility. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Central bank research, Digital currencies and fintech JEL Code(s): E, E4, E42, E5, E51, E58, O, O3, O31