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356 Results

The Financial Origins of Non-fundamental Risk

Staff Working Paper 2022-4 Sushant Acharya, Keshav Dogra, Sanjay Singh
We explore the idea that the financial sector can be a source of non-fundamental risk to the rest of the economy. We also consider whether policy can be used to reduce this risk—either by increasing the supply of publicly backed safe assets or by reducing the demand for safe assets.

Assessing Climate-Related Financial Risk: Guide to Implementation of Methods

A pilot project on climate transition scenarios by the Bank of Canada and the Office of the Superintendent of Financial Institutions assessed climate-related credit and market risks. This report describes the project’s methodologies and provides guidance on implementing them.

News-Driven International Credit Cycles

Staff Working Paper 2021-66 Galip Kemal Ozhan
This paper examines the implications of positive news about future asset values that turn out to be incorrect at a later date in an open economy model with banking. The model captures the patterns of bank credit and current account dynamics in Spain between 2000 and 2010. The model finds that the use of unconventional policies leads to a milder bust.

Quantifying the Economic Benefits of Payments Modernization: the Case of the Large-Value Payment System

Staff Working Paper 2021-64 Neville Arjani, Fuchun Li, Zhentong Lu
Canada is undertaking a major initiative to modernize its payments ecosystem. The modernized ecosystem is expected to bring significant benefits to Canadian financial markets and the overall economy. We develop an empirical framework to quantify the economic benefits of modernizing the payment system in Canada.

Discount Rates, Debt Maturity, and the Fiscal Theory

Staff Working Paper 2021-58 Alexandre Corhay, Thilo Kind, Howard Kung, Gonzalo Morales
Do bond risk premiums influence the effects of debt maturity operations? Using a model with realistic bond risk premiums, we show that maturity operations have sizable effects on expected inflation and output when the central bank passively responds to inflation and the fiscal authority weakly responds to the debt level.
Content Type(s): Staff research, Staff working papers Topic(s): Fiscal policy, Interest rates, Monetary policy JEL Code(s): E, E4, E43, E44, E6, E63, G, G1, G12

Systemic Risk and Portfolio Diversification: Evidence from the Futures Market

Staff Working Paper 2021-50 Radoslav Raykov
This paper explores how the Canadian futures market contributed to banks’ systemic risk during the 2008 financial crisis. It finds that core banks as a whole traded against the periphery, in this way increasing their risk of simultaneous losses.
Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets JEL Code(s): G, G1, G10, G2, G20

Foreign Exchange Fixings and Returns Around the Clock

Staff Working Paper 2021-48 Ingomar Krohn, Philippe Mueller, Paul Whelan
We document a new empirical finding in the foreign exchange market: currency returns show systematic reversals around the benchmark fixings. Specifically, the US dollar, on average, appreciates in the hours before fixes and depreciates after fixes.

Reaching for yield or resiliency? Explaining the shift in Canadian pension plan portfolios

“Reach for yield”—This is the commonly heard explanation for why pension plans shift their portfolios toward alternative assets. But we show that the new portfolios also hold more bonds, offer lower average returns and produce smaller and less volatile solvency deficits. These shifts are part of a broader strategy to reduce solvency risk.

Centralizing Over-the-Counter Markets?

Staff Working Paper 2021-39 Jason Allen, Milena Wittwer
Would a shift in trading in fixed-income markets—from over the counter (bilateral trading) to a centralized electronic platform—improve welfare? We use trade-level data on the secondary market for Government of Canada debt to answer this question.

The Side Effects of Safe Asset Creation

Staff Working Paper 2021-34 Sushant Acharya, Keshav Dogra
The secular decline in real interest rates has created a challenge for monetary policy, now confronting the zero lower bound more often. An increase in the supply of safe assets reduces downward pressure on the natural interest rate. This allows monetary policy to reach price stability and full employment, but not without cost—permanently lower investment.
Content Type(s): Staff research, Staff working papers Topic(s): Fiscal policy, Monetary policy implementation JEL Code(s): E, E3, E4, E5, G, G1, H, H6
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