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We quantify the effects of large-scale stock purchases by a central bank and compare these to bond purchases. We find that the central bank’s equity purchases would lower the risk and term premiums on stocks and long-term bonds, respectively, and thereby stimulate economic activity.

We explore how many electronic funds transfer (EFT) systems can viably coexist within a jurisdiction at efficient scale by estimating the cost curve of the average EFT. We estimate the marginal cost to be approximately $0.55 per transaction, and the fixed cost to be approximately $83 million per year.

This note presents PULSE, a new measure of underlying inflation in Canada based on a dynamic factor model estimated on disaggregated inflation data. PULSE captures the persistent component of inflation and decomposes it into broad-based and sector-specific inflationary pressures.

This paper shows that regional disparities in house price growth are more pronounced during house price busts than during booms. To explain this observation we construct a two-region currency union model incorporating a housing sector and extrapolative belief updating regarding house prices. To solve the model, we propose a new method that efficiently handles extrapolative belief updating in a wide class of structural models.

Can artificial intelligence (AI) think and act like a cash manager? In this paper we explore how generative AI agents can help manage liquidity, prioritize payments and optimize efficiency in real-time gross settlement systems.

In 2024, the Canadian Overnight Repo Rate Average (CORRA) rose 7 basis points above the Bank of Canada’s target overnight rate as settlement balances declined and hedge fund borrowing increased by $30 billion, straining dealers’ balance sheets. Exercising market power, dealers raised rates, and as client activity grew, these higher rates increasingly influenced CORRAs deviation from target.

We construct a dataset on Federal Reserve and Bank of Canada non-rate announcement events to provide novel insights into how foreign and domestic monetary policy communications affect the financial markets of open economies. We find that Fed non-rate communications have a stronger impact on long-term interest rates and stock futures, while Bank of Canada communications are relatively more important for short-term interest rates and the exchange rate.

An alternative to the standard CES aggregator, based on non-homothetic household preferences, is proposed. Specifically, the elasticity of substitution between goods declines during periods of strong per-capita consumption and vice versa, giving firms an incentive to adjust their desired markup in response to the state of demand. Empirical evidence favouring a direct role for per-capita consumption demand in inflation determination for Canada is presented.

We study how participants in the Lynx payment system use the net send limit (NSL) tool to control their intraday payment outflow levels. Our results show that participants typically adopt a “set it and forget it” approach to scheduling NSLs and sometimes have distinct intraday NSL adjustment behaviours.

We identify two channels that affect the relationship between inflation and unemployment. First, inflation lowers wages because unemployed suffer more from inflation than employed, generating a positive relationship. Second, inflation increases firms’ financing costs, generating a negative relationship. Improvements in firm financing conditions can induce the relationship to switch signs.