Managing Risk Taking with Interest Rate Policy and Macroprudential Regulations Staff Working Paper 2016-47 Simona Cociuba, Malik Shukayev, Alexander Ueberfeldt We develop a model in which a financial intermediary’s investment in risky assets—risk taking—is excessive due to limited liability and deposit insurance and characterize the policy tools that implement efficient risk taking. Content Type(s): Staff research, Staff working papers Topic(s): Financial system regulation and policies, Monetary policy framework JEL Code(s): E, E4, E44, E5, E52, G, G1, G11, G18
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 Topic(s): Financial stability, Monetary policy framework JEL Code(s): E, E0, E4, E44, E5, E52, E58, G, G1, G18
The Global Financial Cycle, Monetary Policies and Macroprudential Regulations in Small, Open Economies Staff Working Paper 2016-38 Gregory Bauer, Gurnain Pasricha, Rodrigo Sekkel, Yaz Terajima This paper analyzes the implications of the global financial cycle for conventional and unconventional monetary policies and macroprudential policy in small, open economies such as Canada. The paper starts by summarizing recent work on financial cycles and their growing correlation across borders. Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Housing, International financial markets, Monetary policy framework JEL Code(s): E, E4, E42, E43, E44, E5, E52, F, F4, F41
Financial Crisis Interventions Staff Working Paper 2016-29 Josef Schroth This paper develops a model of an economy where bank credit supports both productive investment and individual consumption smoothing in the face of idiosyncratic income risk. Bank credit is constrained by bank equity capital. Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial stability, Financial system regulation and policies, Lender of last resort JEL Code(s): E, E1, E13, E3, E32, E4, E44
What Are the Macroeconomic Effects of High-Frequency Uncertainty Shocks Staff Working Paper 2016-25 Laurent Ferrara, Pierre Guérin This paper evaluates the effects of high-frequency uncertainty shocks on a set of low-frequency macroeconomic variables that are representative of the U.S. economy. Rather than estimating models at the same common low-frequency, we use recently developed econometric models, which allows us to deal with data of different sampling frequencies. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C3, C32, E, E3, E32, E4, E44
Should Monetary Policy Lean Against Housing Market Booms? Staff Working Paper 2016-19 Sami Alpanda, Alexander Ueberfeldt Should monetary policy lean against housing market booms? We approach this question using a small-scale, regime-switching New Keynesian model, where housing market crashes arrive with a logit probability that depends on the level of household debt. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial stability, Housing, Monetary policy framework JEL Code(s): E, E4, E44, E5, E52, G, G0, G01
Agency Costs, Risk Shocks and International Cycles Staff Working Paper 2016-2 Marc-André Letendre, Joel Wagner We add agency costs as in Carlstrom and Fuerst (1997) into a two-country, two-good international business-cycle model. In our model, changes in the relative price of investment arise endogenously. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, International topics JEL Code(s): E, E2, E22, E3, E32, E4, E44, F, F4, F44
Credit Conditions and Consumption, House Prices and Debt: What Makes Canada Different? Staff Working Paper 2015-40 John Muellbauer, Pierre St-Amant, David Williams There is widespread agreement that, in the United States, higher house prices raise consumption via collateral or possibly wealth effects. The presence of similar channels in Canada would have important implications for monetary policy transmission. Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Domestic demand and components, Economic models, Financial institutions, Financial stability, Financial system regulation and policies, Housing, Monetary policy transmission JEL Code(s): E, E0, E02, E2, E21, E4, E44, G, G2, G21, R, R2, R21, R3, R31
On the Nexus of Monetary Policy and Financial Stability: Recent Developments and Research Staff Discussion Paper 2015-7 Oleksiy Kryvtsov, Miguel Molico, Ben Tomlin Because financial and macroeconomic conditions are tightly interconnected, financial stability considerations are an important element of any monetary policy framework. Yet, the circumstances under which it would be appropriate for the Bank to use monetary policy to lean against financial risks need to be more fully specified (Côté 2014). Content Type(s): Staff research, Staff discussion papers Topic(s): Financial stability, Monetary policy framework JEL Code(s): E, E0, E4, E44, E5, E52, E58, G, G1, G18
Shock Transmission Through International Banks: Canada Technical Report No. 105 James Chapman, H. Evren Damar In this paper, we investigate how liquidity conditions in Canada may affect domestic and/or foreign lending of globally active banks and whether this transmission is influenced by individual bank characteristics. Content Type(s): Staff research, Technical reports Topic(s): Financial institutions, Financial stability JEL Code(s): E, E4, E44, F, F3, F36, G, G2, G21, G3, G32