Decomposing Systemic Risk: The Roles of Contagion and Common Exposures Staff Working Paper 2024-19 Grzegorz Halaj, Ruben Hipp We examine systemic risks within the Canadian banking sector, decomposing them into three contribution channels: contagion, common exposures, and idiosyncratic risk. Through a structural model, we dissect how interbank relationships and market conditions contribute to systemic risk, providing new insights for financial stability. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Economic models, Financial institutions, Financial stability JEL Code(s): C, C3, C32, C5, C51, G, G2, G21, L, L1, L14
Digital Payments in Firm Networks: Theory of Adoption and Quantum Algorithm Staff Working Paper 2024-17 Sofia Priazhkina, Samuel Palmer, Pablo Martín-Ramiro, Román Orús, Samuel Mugel, Vladimir Skavysh We build a network formation game of firms with trade flows to study the adoption and usage of a new digital currency as an alternative to correspondent banking. Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Digital currencies and fintech, Digitalization, Economic models, Financial institutions, Payment clearing and settlement systems, Sectoral balance sheet JEL Code(s): C, C6, C7, C71, D, D4, D8, D85, G, L, L2, L22
The Macroeconomic Implications of Coholding Staff Working Paper 2024-16 Michael Boutros, Andrej Mijakovic Coholder households simultaneously carry high-cost credit card debt and low-yield cash. We study the implications of this behavior for fiscal and monetary policy, finding that coholder households have smaller consumption responses in the short run but larger responses in the long run. Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Economic models, Fiscal policy, Monetary policy JEL Code(s): E, E2, E21, E4, E44, E6, E62, G, G5, G51
Parallel Tempering for DSGE Estimation Staff Working Paper 2024-13 Joshua Brault I develop a population-based Markov chain Monte Carlo algorithm known as parallel tempering to estimate dynamic stochastic general equilibrium models. Parallel tempering approximates the posterior distribution of interest using a family of Markov chains with tempered posteriors. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Economic models JEL Code(s): C, C1, C11, C15, E, E1, E10
Potential output in Canada: 2024 assessment Staff Analytical Note 2024-11 Tessa Devakos, Christopher Hajzler, Stephanie Houle, Craig Johnston, Antoine Poulin-Moore, Ron Rautu, Temel Taskin We expect that potential output in Canada will grow by 2.3% and 2.5% in 2023 and 2024, respectively, and average slightly below 1.7% by 2027 as population growth moderates. Relative to the April 2023 assessment, growth is revised up in 2024, with a larger contribution from trend labour input due to higher-than-anticipated population growth. We revise down our estimates of growth over 2025–26. Content Type(s): Staff research, Staff analytical notes Topic(s): Economic models, Labour markets, Monetary policy, Potential output, Productivity JEL Code(s): E, E2, E3, E4, E5
Assessing the US and Canadian neutral rates: 2024 update Staff Analytical Note 2024-9 Frida Adjalala, Felipe Alves, Hélène Desgagnés, Wei Dong, Dmitry Matveev, Laure Simon We assess both the US and Canadian nominal neutral rates to be in the range of 2.25% to 3.25%, somewhat higher than the range of 2.0% to 3.0% in 2023. The assessed range is back to the level it was at in April 2019. Content Type(s): Staff research, Staff analytical notes Topic(s): Economic models, Interest rates, Monetary policy JEL Code(s): E, E4, E40, E43, E5, E50, E52, E58, F, F4, F41
January 15, 2024 Mapping out the implications of climate transition risk for the financial system Gabriel Bruneau, Javier Ojea Ferreiro, Andrew Plummer, Marie-Christine Tremblay, Aidan Witts We develop a new analytical framework to understand the system-wide implications of climate transition risk. When applying this framework to Canadian data, we find that interconnections within the financial sector could amplify the direct effects of climate transition risk on financial entities. Content Type(s): Publications, Financial System Hub articles Topic(s): Climate change, Economic models, Financial institutions, Financial markets, Financial stability JEL Code(s): C, C6, C63, G, G0, G01, G1, G10, G2, G20, Q, Q5, Q54
Modelling Canadian mortgage debt and payments in a semi-structural model Staff Analytical Note 2024-1 Fares Bounajm, Austin McWhirter We show how Canadian mortgage debt dynamics can be modelled in a semi-structural macroeconomic model, such as the Bank of Canada’s LENS. The model we propose accounts for Canada’s unique mortgage debt structure. Content Type(s): Staff research, Staff analytical notes Topic(s): Economic models, Monetary policy transmission JEL Code(s): E, E2, E27, E4, E43, E47, G, G5, G51
Understanding the Systemic Implications of Climate Transition Risk: Applying a Framework Using Canadian Financial System Data Staff Discussion Paper 2023-32 Gabriel Bruneau, Javier Ojea Ferreiro, Andrew Plummer, Marie-Christine Tremblay, Aidan Witts Our study aims to gain insight on financial stability and climate transition risk. We develop a methodological framework that captures the direct effects of a stressful climate transition shock as well as the indirect—or systemic—implications of these direct effects. We apply this framework using data from the Canadian financial system. Content Type(s): Staff research, Staff discussion papers Topic(s): Climate change, Economic models, Financial institutions, Financial markets, Financial stability JEL Code(s): C, C6, C63, G, G0, G01, G1, G10, G2, G20, Q, Q5, Q54
December 15, 2023 Lessons learned and looking ahead Speech summary Tiff Macklem Canadian Club Toronto Toronto, Ontario In his year-end remarks, Governor Tiff Macklem discusses how lessons learned from recent economic volatility are reshaping the way the Bank of Canada conducts economic analysis and communicates with the public. Content Type(s): Press, Speeches and appearances, Speech summaries Topic(s): Economic models, Expectations, Inflation and prices, Inflation: costs and benefits, Interest rates, Labour markets, Monetary policy, Monetary policy and uncertainty, Monetary policy communications, Monetary policy transmission, Price stability